Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

PRIVATE BUSINESS

CITY OF NEWCASTLE UPON TYNE BILL [LORDS] (BY ORDER)

Order for Third Reading read.

To be read the Third time on Tuesday 25 July.

ALLIANCE & LEICESTER GROUP TREASURY PLC (TRANSFER) BILL [LORDS] (BY ORDER)

Order for Second Reading read.

To be read a Second time on Tuesday 25 July.

Oral Answers to Questions — FOREIGN AND COMMONWEALTH AFFAIRS

The Secretary of State was asked—

Iran

Mr. Frank Roy: If he will make a statement on the verdict of the trial of the Jews from Shiraz in Iran. [129540]

The Minister of State, Foreign and Commonwealth Office (Mr. Peter Hain): We have expressed our deep concern to the Iranian authorities about the sentences. We and our European Union partners have consistently raised our concerns about the conduct of the trial—in particular, its closed nature despite earlier assurances to the contrary.

Mr. Roy: Does my hon. Friend agree that, at a time when the Israelis and the Palestinians are moving that extra mile for peace, Iran remains a bastion of religious intolerance? Will he express to the Iranians the British Government's deep concern about their sham trial of Jewish teachers, rabbis, schoolboys, shopkeepers and cemetery attendants who are guilty of no more than being Jewish?

Mr. Hain: I agree that the trial was deeply flawed. Indeed, we have consistently made our concerns about it clear to Iranian Ministers.
It is, perhaps, something of a mercy, given that 17 Iranian Jews have been executed since 1979, that at least these were not death sentences; but they were nevertheless very heavy. In the context of a flawed trial, we hope that the appeals process will address that. It should be seen against the wider background of a reform

agenda in Iran which we welcome, in which we are engaged, and which has improved human rights in many other respects—although, sadly, it has not yet improved human rights for the Iranian Jewish community.

Mr. Richard Spring: The Minister will be aware that the 10 Iranian Jews were held for months without charge, and were denied the right to appoint their own lawyers. Will he remind the Iranian Government, given the pending appeals process, that Iran is a signatory to the international charter of human rights, which enshrines the right to a just trial?

Mr. Hain: I agree with the hon. Gentleman. My hon. Friend the Member for Greenwich and Woolwich (Mr. Raynsford), the Minister for Housing and Planning, is in Iran now. He has raised our concerns about the trial yet again, and has pressed for the sentences to be reviewed in a favourable way that addresses precisely the points that the hon. Gentleman has raised.

Mrs. Gwyneth Dunwoody: Will my hon. Friend nevertheless insist that if there is really a serious programme to bring Iran into the circle of nations that believe in democracy, and if Iran really wishes once more to be an important player in world politics, Iran must recognise that show trials are not acceptable, that democratic countries will not support them, and that unless there is a very rapid move towards at least lightening the sentences there will be total opposition to allowing Iran to regain the role that it sees for itself?

Mr. Hain: I agree that the eyes of the world will be on this case, and particularly on the way in which the appeals process proceeds. As my hon. Friend says, the trial was deeply flawed, and an injustice has been done. We continue to believe, however, that our policy of critical engagement with the reforming Iranian Government of President Khatami is the best way both to protect human rights in Iran and to engage the Iranian people directly with the objective of achieving an Iran that returns to what my hon. Friend rightly described as the circle of nations, so that it can play an honourable and peaceful role in the establishment of justice in the region and internationally.

EU Reform

Mr. Desmond Swayne: When he next plans to meet the French Foreign Minister to discuss EU institutional reform; and if he will make a statement. [129541]

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Robin Cook): I have a high regard for the French Foreign Minister, whom I meet regularly to discuss institutional reform. The hon. Gentleman will no doubt warmly welcome Mr. Vedrine's statement of last week that he was a pragmatist rather than a federalist.

Mr. Swayne: Does the Foreign Secretary agree with the French Foreign Minister that a constitution for Europe is an aspiration?

Mr. Cook: I read with interest the whole text of Mr. Vedrine's statement last week. He made it clear that


it was difficult to conceive of a constitution for Europe, because it would require a people of Europe. There is therefore no proposal from the French Foreign Minister for such a constitution.

Mr. Bill Rammell: Does the Foreign Secretary agree that there is no consensus among EU Governments in favour of either the French or the German long-term view of the European Union, and that therefore—much though the Conservative party might wish it—the federalist nightmare is not upon us? Does he also agree that if the European Union enlarges there will need to be change, and that that change should focus on, as much as anything, the need to reconnect national Parliaments with decision making in the European Union?

Mr. Cook: The proposal for a pioneer group of European member states has encountered criticism from various countries, from Finland to Italy. The Prime Minister of Italy has said:
Federalism is the model of the past.
Although Opposition Members may wish to scare us with the bogey of federalism on the march, the fact is that most member states agree with us that there is no case for a federal superpower, and that this is not a debate from which we should run away as Opposition Members wish us to.

Mr. Mark Oaten: In his discussions with the French, will the Foreign Secretary still call for swift progress on enlargement, as promised in the Government's annual report, or does he now accept that there has been a cooling off on the issue, with 2006 being the earliest date at which countries will be able to join?

Mr. Cook: I assure the hon. Gentleman that there is no cooling off on the part of the Government of Britain on that issue. We remain firmly committed to enlargement, and enlargement as soon as possible. Indeed, when this morning in Berlin, I met the German Foreign Minister, I repeated Britain's conviction that we should stick with the timetable that we set out recently at Helsinki, which is that the European Union should be ready for new members by the end of 2002. There are countries in central Europe that are making major strides, very painfully, towards membership. We should encourage, not discourage, them.

Mr. John Redwood: When the Foreign Secretary prepares for his meeting with his French opposite number, he will have to read the draft treaty of Nice. Does he understand that, in that draft treaty, it is proposed that a large number of powers should transfer from our elected Parliament to an unelected European Government, including powers to tax? Will he now tell the House if he will rule out transfer of such powers under that treaty?

Mr. Cook: I have repeatedly told the House—I am happy to say to it again for the right hon. Gentleman's benefit—that the Government will not agree to qualified majority voting on tax; but I notice that he is credited with having introduced Mr. Paul Sykes to the Conservative party. Perhaps, therefore, he can shed light on why it is that he belongs to a party—and was in a Government—which went into the European Community without a

referendum, which signed the Maastricht treaty without a referendum, and which would deny us a vote on the single currency if it were ever in power again; and explain why he has suddenly decided that a referendum on the treaty of Nice would be appropriate. The answer is that it has nothing to do with what might be in the treaty of Nice and everything to do with Paul Sykes and what he might put into Tory party bank accounts.

Ms Rachel Squire: Does my right hon. Friend agree that there would be little or no benefit to Britain if our approach was to stand and whinge on the sidelines like the Tory party? Does he further agree that the best place for Britain to be is at the centre of the European stage, working for reform and enlargement to build a more democratic and accountable European Union?

Mr. Cook: I absolutely agree with my hon. Friend. It is important for Britain to be at the centre of Europe and to be a leading partner in Europe. We will be a leading partner only if we retain the support that we have received from the countries that are seeking to be the new members of Europe. I believe that it is very important for Britain to champion enlargement and to be regarded by those countries as their ally and friend. That is why I view with bewilderment the Conservative party's decision to campaign strongly against the treaty that is necessary for enlargement and to throw away that support from central and eastern Europe.

Mr. Richard Spring: Does the right hon. Gentleman agree that EU enlargement through membership of the former communist states of central and eastern Europe is a political and, indeed, moral imperative? Can he, despite his assurances, therefore comment on recent reports that the enlargement process is being delayed to 2005 or 2006 because of the EU' s unwillingness to carry through the necessary reforms? Does he agree that, for enlargement to succeed, the EU will have to reform itself as well as the candidate countries?

Mr. Cook: Absolutely—of course Europe must reform itself. That is precisely what we are doing in the enlargement intergovernmental conference, which will culminate in the treaty of Nice. It is the hon. Gentleman and his party who are proposing to campaign against the treaty of Nice. If it is a moral imperative to enlarge the European Union, perhaps he can explain why the Tories will oppose the very reforms necessary for it. The reality is that he represents a party that, far from enlarging the European Union, frequently sounds as if it would rather shrink the European Union by taking Britain out of it.

Mr. Spring: But is not the real barrier to enlargement the unreformed common agricultural policy? Why are the British Government not leading demands at the intergovernmental conference to tackle that? Is not their failure to engage seriously in the debate raging on the continent about the future shape of the EU yet another example of Britain being, to use the Prime Minister's own


self-description, "insufficiently assertive"? Why is it that the Government have no vision whatever of what the enlarged European Union should look like?

Mr. Cook: I appreciate that the hon. Gentleman has recently joined us as his party's European spokesman. He may, therefore, have forgotten—or not noticed—that, at the Berlin summit, Britain did lead the campaign to reform the common agricultural policy. [Interruption.] The hon. Gentleman asks what that got us. It has got every household in Britain £64 off its food bill compared with the food bill when he was last in office and the previous Government were in power.
The hon. Gentleman has totally failed to answer the question that I put to him. If Conservative Members really believe that it is important for Europe to be enlarged and for these countries to be encouraged, why are they proposing to oppose the treaty of Nice? Is it not that they would rather have Paul Sykes in their party than 13 more countries inside the European Union?

Cyprus

Mr. Andrew Love: If he will make a statement on recent bilateral contacts with Cyprus. [129542]

The Minister of State, Foreign and Commonwealth Office (Mr. Keith Vaz): Recent bilateral contact with Cyprus has been both regular and valuable. My right hon. Friend the Prime Minister met President Clerides in April, and my right hon. Friend the Foreign Secretary met Foreign Minister Kasoulides in May. The meetings focused on the current United Nations Cyprus settlement process and the United Kingdom's continuing interest in and support for that process. Sir David Hannay, the UK special representative for Cyprus, is in regular contact with all those in Cyprus who are involved in the settlement process.

Mr. Love: This week sees the 26th anniversary of the invasion of the island, and they have been long, frustrating years for Cypriots waiting for a solution. I welcome resumption of the proximity talks in Switzerland. Can my hon. Friend reassure the House that the Government continue to support a comprehensive solution to the problems in Cyprus that will reunite the island? Can he also confirm that the action that he is taking will lead to those talks being productive?

Mr. Vaz: First, I congratulate my hon. Friend on all the work that he has done on the issue and on behalf of his many Cypriot constituents. I can reassure him that the Government are doing everything that we possibly can to support the proximity talks. As he knows, the talks will resume next Monday. As I said, Sir David Hannay is our representative. He has visited twice this year to talk to both sides. Our ambition, as set out in the Prime Minister's statement on 23 September 1998, is that there should be a just and lasting settlement. We would like to see a united Cyprus entering the European Union, but that is not a precondition to accession. We shall continue to do everything that we can to propose and support that settlement.

Sir David Madel: Can Turkey become a full member of the European Union and yet still keep its army in northern Cyprus?

Mr. Vaz: The issue of Turkey's candidacy is quite separate from the issues in Cyprus. Turkey has only just become a candidate for inclusion in the Helsinki accession process, and Turkey will be judged on whether it meets the Copenhagen criteria and on the state of its negotiations. No third country has a veto over the accession of another country into the European Union. We will, of course, be carefully monitoring the situation. We will ensure that we are fully aware of all the negotiation processes.

Mr. Andrew Dismore: Will my hon. Friend take the opportunity of confirming that the Government will stick to their position that Cyprus's accession to the European Union will not be vetoed by Turkey or by any other country, and that settlement of the Cyprus issue is not a condition for Cyprus to join the European Union? Will he also make it clear to Turkey, in negotiations on its entry, that there can be no prospect of Turkey's joining the European Union unless and until it gets its troops out of Cyprus?

Mr. Vaz: As I have just made clear, and as the Foreign Secretary made it clear on 14 February, we would like to see a united Cyprus entering the European Union. However, that is not a precondition for accession. Cyprus has done extremely well in the negotiations—it has opened 29 of 31 chapters of the acquis, and closed 16 chapters. Turkey does not have a veto over the accession of Cyprus. The issue for Turkey is quite separate: it will have to meet all the criteria. As we have said on many occasions, Turkey is a long way off. It will have to meet the Copenhagen criteria, and it will have to be part of its own negotiation procedures.

Sir Sydney Chapman: In relation to Cyprus's application to join the European Union, will the Minister confirm that the main issues still to be resolved centre mainly on banking and ship registration? Will the Minister further confirm that there is no reason why those and a few other remaining matters cannot be cleared up in, say, six months' time? If so, why should Cyprus have to wait another two years for the sake of diplomatic convenience so that other successful applicants can join at the same time?

Mr. Vaz: We would like Cyprus to join as soon as possible. It has made excellent progress and has opened 29 of the 31 chapters. There are a number of outstanding chapters and difficult negotiations, including banking. We would like Cyprus to join as soon as possible. It is up to the European Union to ensure that the IGC is completed as at the end of this year. Once that is done and the various treaties have been ratified, it will then be for Cyprus to set its own timetable. We are doing everything that we possibly can to help Cyprus as want to see it in the European Union.

Portugal

Ms Debra Shipley: What recent assessment he has made of bilateral relations between the UK and Portugal; and if he will make a statement. [129543]

The Minister of State, Foreign and Commonwealth Office (Mr. Keith Vaz): Relations between Britain and Portugal have always been close, both bilaterally and as partners within the EU and allies within NATO. The relationship is stronger than it has ever been, following the intensive contacts we have had with Portugal in the run-up to and during its presidency of the EU. I pay tribute to the work of our ambassador to Portugal, Sir John Holmes.
There has been considerable ministerial contact in the run-up to the Portuguese presidency and during the presidency itself. Since November 1999, 10 senior Cabinet Ministers have visited Portugal and 12 other Ministers have also been there.

Ms Shipley: I thank my hon. Friend for that answer. Can he confirm whether or not the historic British-led agreement on the EU economic reform at Lisbon is now paying off in terms of real jobs and growth creation in the EU? Is that not the right way forward for Britain and Portugal, by contrast with the suggestion by the Opposition, who would have Britain out of the EU and working in partnership with Mexico in the North American Free Trade Agreement area?

Mr. Vaz: My hon. Friend is absolutely right: Lisbon was an enormous success. It was a watershed in terms of the economic reform of the European Union and a tribute to the negotiating skills of my right hon. Friends the Prime Minister and the Foreign Secretary. The importance of the Lisbon summit is that it was preceded by a number of bilateral agreements between the United Kingdom and other countries. Of course our future is in the European Union—not in NAFTA, as has been barmily claimed by some Opposition Members.

Mr. William Cash: The Minister will recall that the murderer of my constituent Isabelle Peake escaped to Portugal from France and thereby escaped justice in France. Will he confirm both that progress is being made in establishing how that person managed to evade justice and extradition by committing suicide in his cell, and the circumstances in which that happened? Apparently, the guards were watching football rather than guarding the prisoner. Finally, will he confirm that we will resist all attempts to pay compensation through Portugal to the person who committed the murder rather than to the victim and her parents?

Mr. Vaz: I know that these must be painful matters for the family of Isabelle Peake, the hon. Gentleman's constituents. May I suggest that he come to see me about this matter with her parents so that we can take these matters forward? We will certainly do everything that we possibly can to assist the family and the hon. Gentleman in getting justice for his constituents.

British Council

Ann Keen: If he will make a statement on the funding of the British Council. [129544]

The Minister of State, Foreign and Commonwealth Office (Mr. Peter Hain): The British Council is receiving grant-in-aid of some £136 million this financial year as

part of the three-year comprehensive spending review settlement. This represents a 2 per cent. increase in real terms over the 1998–99 level.

Ann Keen: I thank my hon. Friend for that reply. I am sure that he and all right hon. and hon. Members will agree that the British Council does excellent and supportive work. I should particularly like to highlight its current work in the Punjab in relation to human rights and encouraging women there to stand as local government representatives. Will he confirm his support for higher funding for the British Council, in line with the opinion of the Select Committee on Foreign Affairs?

Mr. Hain: I agree with my hon. Friend that the British Council is doing an excellent job in the Punjab. It has, for example, a library that is a showcase for Britain there, as it has in many other parts of the world. Wherever I go on overseas ministerial visits, I make a point of visiting the British Council if I can. As for funding, we shall have to wait for the Chancellor's statement, but 10 years ago under the Tories, spending on the British Council was 8 per cent. of the budget of the Foreign Office, whereas now it is 12 per cent. That shows our commitment to the British Council, and we shall continue to give it.

Miss Anne McIntosh: I declare an interest. I received a British Council grant to study at a Danish university. I also received a grant from Rentokil. How many postgraduate students are now able to benefit from British Council funds to study at a European Union university, as I did in my early 20s?

Mr. Hain: I am not sure whether the hon. Lady can spray a bit of Rentokil around the Conservative Benches, thereby enhancing the quality of the House. We are committed to the British Council's getting as much support as possible in respect both of the issue that she raises and of other issues. When I have visited posts, I have seen the excellent work of the council and the way in which it encourages students to come to Britain by providing all sorts of support, from IT support and English language training to assistance with visas and university placements. That is another excellent mark to its credit.

Mr. Derek Wyatt: May I join the fan club of the British Council and express the hope that in the next hour it will receive an increase in its three-year funding? Will my hon. Friend use his best endeavours to support the council? As he knows, it deals with the English language, which is the world's premier language. Would it not be great if we could use some of the money in the next three years to link the British Council with the British library so that we could offer the best service in the world through British Council offices?

Mr. Hain: I will certainly consider that. I agree with my hon. Friend that the council's commitment to English language teaching, much of it now self-financed, is extremely important. When I travel in francophone or lusophone African countries, it is clear that their leaders want to see their people and their countries engage increasingly with the English language and the anglophone world, not least because English is the language of IT and international business. For that reason,


the council's work will continue to have support from the Foreign Office, and I am sure that it will have support from the Chancellor later.

Zimbabwe

Mr. John Bercow: What plans he has to meet the President of Zimbabwe; and if he will make a statement. [129545]

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Robin Cook): Meetings with President Mugabe are always memorable, but at present I have no immediate plans for another such meeting. The recent elections in Zimbabwe were a triumph of the democratic spirit over attempts to suppress it. Despite two months of intimidation and gerrymandering, almost as many citizens of Zimbabwe voted for the Opposition as for the Government. I have urged President Mugabe to respond positively to the Opposition offer to work together and to accept the mood for change demonstrated by the people of Zimbabwe.

Mr. Bercow: I am grateful to the Foreign Secretary for that reply. Given the appalling violence in the recent Zimbabwean elections, the call by Morgan Tsvangirai for the impeachment of President Mugabe, and the Prime Minister's acknowledgement that the Government are seen to be "insufficiently assertive" on this issue, why does the right hon. Gentleman not make President Mugabe a pariah by pressing internationally for the freezing of his assets and the immediate imposition of a ban on his foreign travel?

Mr. Cook: I have the advantage over the hon. Gentleman, in that I spoke to Morgan Tsvangirai earlier today. He made it clear that the Opposition would be seeking ways of working together—[Interruption.] The hon. Gentleman quoted Morgan Tsvangirai; he should allow me the courtesy of sharing with the House what Morgan Tsvangirai shared with me this morning. He made it clear that, as the Opposition were seeking to work with the Government in the Parliament, which sits for the first time on Thursday, and as he had invited the Government to respond to that call for national reconciliation, he did not believe that penal sanctions would be helpful. The matter of impeachment is in the hands of the Parliament of Zimbabwe, not this Parliament.
President Mugabe faces inflation of 60 per cent. and has just announced a budget deficit of 15 per cent. He faces food shortages, power cuts and business failures. No measure that we could take would impose more hardship on the people of Zimbabwe than what President Mugabe is already doing.

Mr. David Taylor: Would my right hon. Friend the Foreign Secretary be astonished to hear that the hon. Member for Buckingham (Mr. Bercow) was once the secretary of the immigration and repatriation committee of the Monday club? Does not that show the nature of the remarks that we are hearing

from the Opposition Benches? Is not the mask being peeled away, to show the racism and xenophobia that have always been endemic in the Conservative party?

Mr. Cook: I was unaware of that episode in the career of the hon. Member for Buckingham (Mr. Bercow). I have obviously failed to follow it with the attention that it deserves.
Both sides of the House have praised the courage of Morgan Tsvangirai and the Opposition and their determination to put their case with dignity and without violence at the election. If we respect their courage and determination, we should respect also their advice when they ask us not to take sanctions against Zimbabwe.

Mrs. Cheryl Gillan: The Foreign Secretary has been remarkably slow to condemn what has happened in Zimbabwe in the past. Given the universal condemnation of the elections as a travesty of democracy and the remarkable success of an extremely brave Opposition, operating with all the odds stacked against them; and given the fact that the Mugabe regime seems to have changed its behaviour not one iota since the elections, does the right hon. Gentleman agree that it is time now for Britain to use its position at the centre of the Commonwealth to mobilise some serious international action? Such action would show Mr. Mugabe that he is being watched, that he and his thuggish cronies will not be permitted the type of conduct that they have engaged in to date, and that it belongs firmly in the past? If he fails to do so, will he not be receiving another memo from the Prime Minister demanding to know why, on issues like Zimbabwe, the Government are seen to be "insufficiently assertive"?

Mr. Cook: Far from our being slow on the question of Zimbabwe, there were 400 election observers towards the close of the election campaign, solely because Britain mobilised the international community and obtained observers from both the Commonwealth and the European Union—action which was warmly welcomed by the Opposition and the Opposition candidates. I have already discussed the report of the Commonwealth observers with the chair of the Commonwealth ministerial action group. We are inviting the comments of President Mugabe and the Government of Zimbabwe in response to it. We shall be ascertaining what steps we can take to ensure that when the people of Zimbabwe next have the opportunity of an election to fill the presidential post in two years' time, they can take it without fear of violence, intimidation and gerrymandering.

Burma

Mr. Jim Fitzpatrick: If the Burmese regime has responded to the recommendations made by the International Labour Organisation following its recent mission to the country. [129546]

The Minister of State, Foreign and Commonwealth Office (Mr. John Battle): We are deeply concerned about the brutality of the military in Burma, the use of forced labour and the displacement of ethnic minorities.
Sadly, the Burmese regime has done nothing to implement ILO recommendations dating from 1998 that relate to forced labour, including women, children and the elderly, despite the recent ILO mission to Rangoon in May.

Mr. Fitzpatrick: Will my hon. Friend continue to make it clear to investors in Burma that the military regime is in breach of ILO and other international conventions and that they should not be helping this outlawed country by doing business with its rulers?

Mr. Battle: Yes. We announced on 17 June 1997 that we do not encourage trade with or investment in Burma. We have suspended financial support for trade missions and trade promotions. In March, I told Premier Oil, the largest UK investor in Burma, that we would welcome its moving out. Any British companies that inquire about trade with Burma are informed of the dire political situation and its appalling human rights record.
We discourage tourism as well. It is not possible to ban people going to Burma, particularly from other countries, but every British tourist who goes to Burma should realise that he or she must exchange about US $300 on arrival, and every one of those dollars will be propping up that murderous regime.

Mr. David Heath: Given the abuses that the Minister has already described, will he continue to stress that message to British companies, including Premier Oil? Will he seek also to persuade the Governments of eastern Asia, especially the Japanese, that the policy of constructive engagement with Burma is not working and that stronger measures are now needed?

Mr. Battle: The answer is yes, we are doing that, and we will continue to do so. We have put pressure on the ILO, and, I think for the first time in its history, it has adopted exceptional measures which, if there is no change, will come into force in November. We have made representations, and we have proposed measures to strengthen the EU position. We have co-sponsored UN resolutions, and, with countries in the Association of South-East Asian Nations, we have also made the point forcefully that we will keep up pressure on Burma until it respects the democratic tights of all its people.

Mr. Owen Paterson: Why does the ethical foreign policy apply to Burma but not to China?

Mr. Battle: It does apply to China. The small difference is that Burma does not accept that there is even a question of its denying human rights, despite the fact that it is estimated that between 500,000 and 2 million people are refugees within that country. Burma will not enter into a dialogue at all. At least China is prepared to discuss the question of human rights. With Burma it is a shut door.

World Service

Mr. Paul Keetch: What assessment he has made of the BBC World Service's role in conflict prevention in third-world countries; and if he will make a statement. [129547]

The Minister of State, Foreign and Commonwealth Office (Mr. Peter Hain): The objectivity that is the hallmark of BBC World Service broadcasts plays a crucial role in areas of tension and conflict. The BBC World Service also plays an important role in carrying out media training predominantly funded by the Government, where local media bias may be a contributing factor to conflict.

Mr. Keetch: Does the Minister agree that the BBC remains the premier and most impartial international news organisation? Will he pay tribute to the World Service, not just at Bush house and elsewhere in Britain, but to its training programmes in places such as the Balkans, Indonesia, Sierra Leone and Afghanistan? Will he assure the House that, in the Chancellor's announcement which is to follow this Question Time, the World Service will be given the additional resources that it needs to upgrade its transmitters and relay stations and keep pace with modern technology?

Mr. Hain: The hon. Gentleman will not expect me to respond to his request to anticipate the Chancellor. The Government are strongly committed to the BBC World Service, which is booming. Since last year, the number of its listeners has risen by 8 million to a record 151 million, and we have put in an additional £44 million during the current three-year period. That is a sign of our commitment. We want to see the BBC World Service and BBC world television extend their coverage throughout the world.

Mr. Tom Clarke: Does my hon. Friend accept that many of us welcome the positive comments that he has just made about BBC radio and television internationally? Will he take this opportunity to congratulate it on its balanced coverage in a difficult situation during the recent elections in Peru?

Mr. Hain: I agree with my hon. Friend that the coverage was very good, as it almost always—if not always—is throughout the world. Travelling throughout the world as my colleagues and I do, we continually hear praise heaped upon the BBC World Service, as one of the few objective sources of information in far too many countries.

Mr. Martin Bell: Does the Minister share my view that the BBC World Service in radio and television is Britain's greatest diplomatic asset?

Mr. Hain: Yes, probably, apart from the present team of Foreign Office Ministers.

Colombia

Mr. Paul Goggins: What recent representations he has made on behalf of kidnap victims in Colombia. [129548]

The Minister of State, Foreign and Commonwealth Office (Mr. John Battle): The British ambassador in Bogota delivered a clear message to the guerrillas that they must end their involvement in kidnappings, forced disappearances and extortion, prior to an international meeting in Colombia on 29–30 June. A statement subsequently issued by all 23 countries and organisations


represented—including our EU partners—also called for an end to extortion, kidnappings and other serious violations of human rights.

Mr. Goggins: As my hon. Friend is aware, kidnapping for political and financial advantage is an all too common occurrence in Colombia. I draw my hon. Friend's attention to the five remaining hostages of the Avianca hijacking in April last, one of whom is Juan Manuel Corzo, a member of the Colombian Parliament. Will the Minister use every means at his disposal to urge all armed groups in Colombia, including the FARC and the ELN to grant an early release to all hostages as a genuine and sincere indication of their desire for peace?

Mr. Battle: Yes. We regularly discuss human rights with the Colombian authorities. Those discussions include the subject of kidnapping and hostage taking. My right hon. Friend the Prime Minister raised our concerns over the continuing violence in Colombia when he met President Pastrana during the President's visit to London on 13 April. We also stress the need for further progress on human rights. When my right hon. Friend the Minister for the Cabinet Office visited Colombia, she also urged the Government to tackle the problem of the paramilitaries.
Of course, the best way to end kidnapping is to help the Colombian Government to advance the peace process. More encouragingly, on 10 July President Pastrana signed legislation making forced disappearances a criminal act under Colombian law. What we now want the Colombian Government to do is to introduce the instruments to enforce that legislation.

Mr. John Wilkinson: I associate myself from the Conservative Benches with the remarks of the hon. Member for Wythenshawe and Sale, East (Mr. Goggins). Is not the fact that President Pastrana has sent his former high commissioner for peace to this country as ambassador a sign of the importance that the Colombian Government attach to the United Kingdom in advancing reconciliation and the restoration of security within that country? Can Her Majesty's Government now make resources available to Plan Colombia to reconstruct the country, and not necessarily wait for the European Union to do it?

Mr. Battle: In relation to Plan Colombia, we are playing a full part in the international and EU discussions. We convened a conference in London to engage the non-governmental organisations in that process. The recent conference in Madrid took the process further. I believe that no country is discussing contributions at this stage, because we want the structure of our contributions to the plan to be right, which includes improving the human rights situation in Colombia. Our aim is to work constructively to ensure that the peace process is properly supported and that the horrific accounts by Amnesty International of some 24,000 murders that it has catalogued become a thing of the past.

Dr. Jenny Tonge: I understand that the Minister for the Cabinet Office has recently had meetings about Plan Colombia in Colombia and in the

United States. Can the Minister tell us something about those meetings and whether the British Government are mindful of the need to modify the military aspect of Plan Colombia, which would do so much damage to the people there? Will the Minister also comment on the fumigation of crops that is proposed by the United States Government?

Mr. Battle: The fact that my right hon. Friend was engaged in the process both during her visit and at the meeting in Madrid was a clear indication that we certainly attach importance to supporting the peace process. That not only means including alternative crops rather than spraying, but involves a wider social and economic agenda than has been suggested by others: it means tackling illegal drug production and trafficking, and we insist on an emphasis on human rights. Our intention has been to broaden and deepen the agenda so that it is not a single instrument; that would be in no one's interests. We want to ensure that in the long term Colombia has a peaceful way of ensuring the development of the people and not a dependency on drug cultivation.

Mr. Tony Lloyd: My hon. Friend is right to say that the best long-term guarantee against kidnapping is to move on the peace process. But will he also make sure that the message from our Government is clear: we expect the Colombian Government to prioritise the problem of hostages and hostage taking and make sure that that is a part of their own peace dialogue; and that there is also an expectation that the ELN and the FARC will make sure that hostage taking becomes a thing of the past, as a measure of their sincerity in moving towards the process of peace?

Mr. Battle: I can only re-emphasise that in all our meetings at every level we tackle that agenda and keep insisting on it. The British embassy maintains a regular dialogue with human rights bodies and other NGOs in Colombia and has facilitated meetings between NGOs and representatives of the Colombian armed forces in order to encourage confidence building. In addition, the ambassador and officials often visit trouble spots, both at the invitation of interested parties and on their own initiative, to try to bring people together around the peace process, which is the way forward.

Middle East

Mr. James Clappison: What recent representations he has received about the middle eastern peace process. [129549]

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Robin Cook): We warmly welcome the initiative of President Clinton in bringing Israel and the Palestinian Authority together in a summit. My right hon. Friend the Prime Minister and I met Prime Minister Barak on the eve of the summit and my right hon. Friend the Prime Minister has sent a message of support to President Arafat. There remain formidable differences to be bridged on the territory of the west bank, on the status of Jerusalem and on the rights of refugees.


Both sides must show courage and compromise if they are to secure for their peoples the great prize of a permanent peace.

Mr. Clappison: Does the Foreign Secretary agree that, in their response to President Clinton's initiative, both Prime Minister Barak and President Arafat are making it abundantly clear that they are committed to the peace process and are doing everything in their power to bring about a lasting settlement in the face of substantial internal opposition? Can the Foreign Secretary tell us what practical steps the Government are taking to support them and, in particular, to help gain the acceptance of the Israeli and Palestinian people for the peace process?

Mr. Cook: I agree absolutely with the hon. Gentleman about the courage being shown by both those leading the delegations. I stress that peace is a far greater advantage to both sides than the price of any compromise necessary to secure that permanent peace. The hon. Gentleman asked what we are doing to be helpful. Only yesterday, I spoke to Madeleine Albright and assured her that, if there is a peace settlement, Britain, and Britain in the European Union, will be willing to ensure that we take every possible step to see that it is bedded down and that the people of Israel and Palestine can see that there are real and concrete advantages from it.

Mr. Michael Clapham: I welcome the fact that my right hon. Friend has played an important part in bringing together President Arafat and Prime Minister Barak. Does he agree that one of the major keys to peace in the area is to persuade and encourage the Syrians to support the peace deal? Will he step up his efforts, possibly working with one of the Arab leaders, such as Egypt, to persuade the Syrians to accept peace with Israel?

Mr. Cook: Britain's position has always been to favour a comprehensive peace settlement. Only with a comprehensive peace settlement and all its tracks can we have security for the region. I met new President Bashar al-Assad at the state funeral in Damascus and assured him that we will wish to continue our dialogue and would wish to encourage both sides to find a solution to the Golan Heights and the Syrian track, which will bring stability and security to the region.

EU Enlargement

Mr. Peter Luff: If he will make a statement on the agenda for the current IGC as it relates to enlargement. [129550]

The Secretary of State for Foreign and Commonwealth Affairs (Mr. Robin Cook): The central purpose of the intergovernmental conference is to prepare the European Union for enlarged membership. The applicant countries will measure Europe's commitment to enlargement by our resolve to complete these reforms on schedule. Britain's positive role in the IGC reflects the Government's position that Britain must be the champion of enlargement.

Mr. Luff: Notwithstanding the Foreign Secretary's platitudes, does he agree with recent authoritative

estimates that enlargement could cost the EU budget £24 billion because of a failure to achieve fundamental reform of the common agricultural policy? Does the Foreign Secretary regret his Prime Minister's failure to secure such reforms at Berlin last year?

Mr. Cook: At Berlin we secured reform of the structural funds and the common agricultural policy, which has provided—[Interruption.] We did indeed. Every household in Britain will see its bill decrease by £64 as a result. We created room in the budget to afford enlargement in the current financial perspective until the year 2006.
The hon. Gentleman and his hon. Friends cannot pose as supporters of enlargement if they constantly harp on the cost of enlargement. There will be benefits. For Britain, those benefits could result in almost an additional £2 billion-worth of trade. We will benefit from that as an existing member; it is not just the new applicants that will benefit.

Mr. Harry Barnes: Is there not a paradox in that many of the new applicants are newly emerging democracies? If they are accepted, they will be joining an organisation that is bureaucratic and centralised and will be giving up some of the democracy that has just been established? Should not the European Union enhance its democracy and help them to share in its operation?

Mr. Cook: Whether those countries should join is a decision for their own democracies. I do not know any of those Governments who are not enthusiastic about joining the European Union. I agree with my hon. Friend that we must make the European Union more transparent, democratic and accountable and that is precisely why we are pressing at the IGC for reform of the Commission and the Council of Ministers, and for votes that will fairly reflect the size of population in the larger countries such as Britain.

Africa

Mr. Damian Green: What steps he has taken to put into practice his ethical foreign policy with regard to Africa; and if he will make a statement. [129551]

The Minister of State, Foreign and Commonwealth Office (Mr. Peter Hain): We back positive change in Africa by supporting those Governments who promote democracy, respect for human rights and the rule of law. We are helping Africa in the fight against poverty, AIDS, corruption and conflict. I am focusing on activities that fuel conflict and break sanctions, especially the illegal diamond trade. Yesterday, I spoke at an international diamond trader conference in Antwerp to press for action to block diamonds that fund wars in Angola, Sierra Leone and the Congo.

Mr. Green: I am grateful to the Minister for his words, but when he contemplated the sight of child soldiers in Sierra Leone carrying British weapons, did he consider the devastating candour of his own analysis in the New Statesman that the phrase "ethical dimension" in relation to Britain's foreign policy was just
a hook on which we found ourselves … ?


Will he now acknowledge that the so-called ethical foreign policy is the Foreign Secretary's personal contribution to the Government's most pervasive failing—the desire at all times for spin rather than substance?

Mr. Hain: That was a well rehearsed little contribution, wasn't it? The fact is that this Government have taken a stronger stand on human rights and social justice than any previous Government in Britain, and certainly the previous Tory Government of 18 years. What action did they take against the diamond traders who fuel conflict in Sierra Leone, Angola and the Congo? They did nothing. Yesterday, I represented the Government and my right hon. Friend the Foreign Secretary in Antwerp in seeking an agreement with the International Diamond Manufacturers Association, the producer countries and the importer countries, and the trading centres in Tel Aviv, Bombay and Antwerp, to put on the agenda for the first time a proper certification scheme to stop the illicit export and import of the diamonds which fuels war rather than prosperity. That is a great blow for human rights in Africa and elsewhere.

Mr. Donald Anderson: My hon. Friend has made a significant personal contribution to human rights, especially in southern Africa. Does he agree that when apartheid reigned in South Africa, when the Group Areas and Registrations Act was on the statute book and when Nelson Mandela was in prison, there was no ethical foreign policy from the then British Government? One of the most significant things that we can do now to promote an ethical foreign policy is to help the South African Government with good governance and to relate to them in every way so that they can be a beacon in the region.

Mr. Hain: Absolutely. As my hon. Friend points out, it was Conservative Members and their former leader who condemned Nelson Mandela as a terrorist. It was some of them and their supporters who went round universities in Britain with badges saying "Hang Nelson Mandela." Where was the ethics and the commitment to human rights in that? Our commitment on those issues was strong in opposition and continues to be driven forward in government.

Mrs. Cheryl Gillan: Has the Minister had the opportunity to see yesterday's report that five people collecting relief items were killed in an ambush by Sudanese Government forces in the Nuba mountains? Is he aware that in recent months the Sudanese Government have bombed schools and medical centres in their country? Given that the United Nations Security Council and the United States have both condemned strongly the atrocities committed by the Sudanese Government, will not many people be appalled and dismayed by the tactless move of this Government in granting a visa to and laying out the red carpet for the Sudanese Foreign Minister today? When it comes to foreign policy, can the Minister tell us where hypocrisy ends and ethics begin?

Mr. Hain: I shall take no lessons in hypocrisy from the hon. Lady, or from Conservatives generally. Is she saying that the Foreign Minister of the Sudan, who met me this morning to discuss the peace process and how to take that

forward and who will meet my right hon. Friend the Foreign Secretary this afternoon, should not come to visit the Archbishop of Canterbury either—because he is to meet the Archbishop too? To take forward the agenda for peace in that war-stricken country, the hon. Lady should support the Intergovernmental Authority on Drought and Development peace process and all the initiatives that we are taking and discussing with the Sudanese Government to end the misery and atrocities. I agree with her that those atrocities and miseries should be ended as soon as possible, which is why we are taking decisive action.

Estonia

Dr. Alan Whitehead: If he will make a statement on recent bilateral contacts with Estonia. [129552]

The Minister of State, Foreign and Commonwealth Office (Mr. Keith Vaz): Bilateral contacts with Estonia are in excellent shape. In July 1999, my right hon. Friend the Foreign Secretary visited Tallinn on the occasion of the formal opening of the new British embassy building and held talks with senior members of the Estonian Government. President Meri called on my right hon. Friend the Foreign Secretary during his visit to the UK in March this year. I plan to visit Estonia in the autumn.

Dr. Whitehead: I thank my hon. Friend for that reply. Does he accept that the passing of language laws in Estonia on 14 June was a genuine step forward in the protection of minorities there? Will he assure me that as enlargement takes place in the EU, applicant states will be closely monitored on their dealings with minorities and on good governance?

Mr. Vaz: I agree that the passing of that law was extremely important. I assure my hon. Friend that, working through the High Commissioner for Ethnic Minorities at the Organisation for Security and Co-operation in Europe, we are doing our best to monitor the situation. Estonia is doing extremely well in its application to join the European Union and has opened 29 of the 31 chapters of the acquis, having closed 13 of them. Relations with our country are excellent and I believe that there is even an Estonian football player who plays for Derby County.

Mr. Ian Bruce: I am sure that the Minister will acknowledge that Estonia is close to being ready for accession, as are a number of states. Can he tell the House when he expects accession to take place, as all the applicant countries keep telling us that they are getting extremely frustrated at the way in which Europe is holding them back?

Mr. Vaz: As I told the House earlier, it is not for the European Union to set admission dates for applicant countries. It is for us to get our house in order, which the Foreign Secretary says we will have done with the conclusion of the IGC by the end of this year. We obviously want Estonia to join as quickly as possible, but it must set its own timetables and will only join once we have completed institutional reform. It will set its own timetables, and we want to see it in as quickly as possible.

Vatican

Mr. Andrew Mackinlay: If he will make a statement on the UK's relations with the Holy See. [129554]

The Minister of State, Foreign and Commonwealth Office (Mr. Keith Vaz): We have very good relations with the Holy See. During my visit to Rome in January this year, I had a meeting at the Vatican with Monsignor Migliore, and also met Cardinal Etchegaray, Archbishop Van Thaun and Bishops Martin and Fitzgerald. Her Majesty the Queen will meet Pope John Paul II when she visits Rome between 16 and 19 October.

Mr. Mackinlay: Does the Minister recall that the Foreign and Commonwealth Office, along with the American Department of State, considered it appropriate to give unsolicited advice to the Vatican on what it deemed to be the imprudence of the Holy Father making a visit to Iraq. Bearing in mind the fact that the Pope's travel arrangements are deemed to be appropriate business for the FCO, as well as our residual duties and obligations to promote human rights and religious liberties in Hong Kong, can the Minister tell us what representations have been, or will be, made to the Chinese authorities in the light of the fact that they refused the Pope permission to visit the 250,000 Catholics in Hong Kong on a pastoral visit?

Mr. Vaz: If our embassy in the Holy See is consulted on these matters, we will be part of the discussions. There is no question of our telling the Pope or the Vatican where they should go or whom they should visit. However, if those matters are raised as part of the bilateral discussions and negotiations, the UK Government will put their views forward.

Cyprus

Mr. Eddie O'Hara: If he will make a statement on the resumption of the Cyprus proximity talks. [R][129555]

Mr. Tom Cox: If he will make a statement on the resumption of the Cyprus proximity talks between the President of the Republic of Cyprus and Mr. Denktash. [129558]

The Minister of State, Foreign and Commonwealth Office (Mr. Keith Vaz): We welcomed the resumption of

the UN proximity talks on 5 July in Geneva, which have adjourned but will resume on 24 July and proceed until around 4 August. There will then be a further recess, after which talks will resume on 12 September in New York. UN Assistant Secretary-General De Soto has stated that he is happy that a calendar for the talks has been established but is unwilling to characterise their state of play.

Mr. O'Hara: On behalf of the British Government, will my hon. Friend condemn the recent advance of the Turkish army across 200 m of neutral ground at Strovilia, which is not only an act of aggression but an insult to the UN and, indeed, calculated not to facilitate the success of the negotiations? Further, will he confirm that the recognition of a Turkish republic of northern Cyprus as a legal entity can be neither the starting point nor the end point of negotiations, as that would legalise the armed occupation of a sovereign state?

Mr. Vaz: My hon. Friend is clearly a friend of Cyprus and has raised these issues on a number of occasions. The Government do not want anything to interfere with the success of the proximity talks, which as he knows will begin on Monday. I shall certainly take on board the points that he has made and pass them to Sir David Hannay. [Interruption.]

Madam Speaker: Order. I should be obliged if the House would come to order. It is still Question Time.

Mr. Cox: Although I note my hon. Friend's reply, is he aware of the crucial importance of the present round of talks? Over the 26 years since the brutal invasion of the Republic of Cyprus, which I remind my hon. Friend is a Commonwealth country, we have seen countless similar talks, only for them to fail. I hope that my hon. Friend will propose that the United Nations resolutions on Cyprus form the basis of the talks and that Mr. Denktash and his advisers will at long last be asked to enter meaningful discussion and not engage in the spoiling tactics that have been used repeatedly over the years since the invasion of the Republic of Cyprus.

Mr. Vaz: I pay tribute to my hon. Friend's work on the Cyprus issue. He will recall the Prime Minister's statement on 23 December 1998 and the progress that we have made in the past two years. He will know of the importance of the proximity talks, and that they resume on 24 July—next Monday. We will do everything that we can to ensure a just and lasting settlement to this sorry issue.

Spending Review

The Chancellor of the Exchequer (Mr. Gordon Brown): With permission, Madam Speaker, I should like to make a statement.
The public spending allocations for 2001–04 that I am announcing today are possible because, having eliminated the £28 billion deficit that we inherited and having reduced the national debt, the state of our public finances is strong. In the economic cycles of the past 30 years, the current budget deficits averaged £109 billion. The national debt doubled and by 1997 had risen to 44 per cent. of national income. Stop-go in the economy meant stop-go in the public finances.
Our first task was to create stability and sustainable public finances and, having set clear fiscal rules over the economic cycle, a current budget in balance, borrowing only to invest within prudent and cautious limits. Today, we have not only low inflation and stable growth but year-on-year current budget surpluses and debt falling below 40 per cent. of national income—indeed, debt being repaid this year and next. It is this sustained and sustainable improvement in public finances that makes possible a sustained and sustainable improvement in our public services.
Our second task was to encourage the work ethic and secure rising employment. Today, with the assistance of the new deal, unemployment is at its lowest for 20 years, and almost 28 million people—more people than ever before—are in work in our country. Now, building on that foundation of stability and strengthened economic fundamentals, we can move to the next stage in creating a better future: to make good the damage done by the legacy of decades of underinvestment across our public services, and to realise long-term national goals that we have set for a decade. They are to close the productivity gap with our competitors, to deliver and sustain full employment, to secure higher education for a majority of our young people, to halve and then abolish child poverty and to build strong public services as we create a Britain where there is security and opportunity not just for some people but for everyone.
The first conclusion of this year's spending review is that prudent, targeted, long-term investment is not only a social good but, in a changing and often insecure world, an economic necessity. It is only by investing in education, science and the future of our children that we can equip ourselves for future economic success and ensure opportunity for all. It is only by investing in health, transport, the environment and law and order that we can ensure a more productive economy and security for all.
Just as stability and economic strength make possible new investment, so too new investment will reinforce stability and create longer-term economic strength. So, while we will raise current expenditure only in line with our neutral view of trend growth by 2½ per cent. a year, we propose to tackle the long-term neglect of investment in our country with a step change in capital investment for education, science, health, policing and transport and infrastructure.
As I announced in the Budget, net capital investment will more than double, rising from £7 billion this year to £18 billion by 2004, within a ceiling for public investment of 1.8 per cent. of national income as we renew our public services.
The second conclusion of our spending review is that it is by tying new resources to reform and to results and by locking in incentives, penalties, inspection and information that we ensure that new investment goes to the front-line services: in secondary as well as primary schools, new targets for literacy, numeracy and IT; in hospitals, new systems of inspection; in law and order, reforms of criminal justice; in defence, the next stage of the strategic defence review; in local government, new public service agreements; and in transport, the new partnership between public and private sector. At every stage, money will be tied to output and to performance.
Let me give the full details of the financial background. In the Budget, I confirmed that the current surpluses from 2000 would be £14 billion, £16 billion, £13 billion, £8 billion and £8 billion in the succeeding years. I also confirmed that net borrowing would be minus £6·5 billion, minus £5 billion, plus £3 billion, plus £11 billion and plus £13 billion—lower borrowing in every year than in any year of the previous Parliament. I said that, as a share of national income, debt will be 35, 34, 33, 33 and 33 per cent. Thus, even with our programme of public investment, we meet both our fiscal rules, and we do so even on the most cautious case and even on the most cautious view of trend growth at 2.25 per cent.
In accordance with the code of fiscal stability, I will publish the second set of fiscal forecasts of the year in the autumn, but I can already report to the House that, since the Budget, the fiscal position has further strengthened. For the year ending March 2000, the current surplus is healthier than originally forecast at the time of the Budget. [Interruption.] The Opposition are not used to these announcements. The current surplus is not £17.1 billion, but £20.4 billion. Debt as a share of GDP has been reduced from 37.1 to 36.8 per cent.
Indeed, I will use a further underspend of £2.5 billion in annually managed expenditure to repay more debt. Two billion pounds in departmental expenditure can be carried forward. However, on grounds of prudence, I have decided to allow a carry forward of only £1.5 billion and to allow spending of only half of that this year and half next year, and to allocate the remaining sum to repay more debt.
It is only because we have put the public finances on a sustainable footing that I can raise spending today. That same discipline allows me to inform the House that, this year, we have repaid £6.2 billion more debt than the £11.9 billion originally planned—in total, a debit repayment this year of £18.1 billion. That is the largest repayment of debt in any year since the war.
We have not, and will not, relax that discipline. So I have three policy announcements to underspin—[Laughted]—underpin the strength of our public finances. Further limited sales of spectrum will take place by the end of 2001. We will not repeat the mistakes of the North sea oil windfall. We will not repeat the mistakes of the privatisation sales, where receipts were immediately used up in current spending. I can confirm that all the capital proceeds will, as with the £22 billion from the first sale of spectrum, go to further reducing the burden of debt.
As debt is reduced, so too are debt interest payments. The first spectrum sale alone will save the bill for debt interest by a further £1 billion a year by 2003–04. As I will confirm later this afternoon, that money will go, year after year, directly to improve our public services.
Secondly, Departments and authorities will make asset and property sales of £4 billion a year over the next three years. That makes £4 billion a year released by realising unproductive assets that we do not need to fund service improvements that we do need. Because money is tied to modernisation, the new public service agreements signed with Departments, and now signed for the first time with local government, will specify not only agreed outcomes, but precise timetables for making necessary reforms.
I can tell the House that as a result of the fall in the share of administration costs in total government spending, new money makes possible a substantial shift in spending to front-line services to recruit more nurses, doctors, teachers, classroom assistants and police—more staff for our front-line services. With the success of the new deal, the bills for social and economic failure are £3½ billion lower, enabling us to transfer £3½ billion every year from paying unemployment benefits to funding public services.
With that improvement comes a radical shift in the composition of public spending in our country. Our promise was to reduce the costs of failure—the bills for unemployment and debt interest—in order to reallocate money to key public services. In the two decades from 1979 to 1997, rising debt interest and unemployment and social security accounted for 42 per cent. of all extra public spending. That meant that 42p in every additional pound was not available to the key public services.
In the coming three years, unemployment, social security and debt interest payments will account not for 42 per cent., but for only 17 per cent. of extra public spending—even as we direct more money to child benefit and the minimum income guarantee. That leaves 80 per cent. of new money for health, education, transport, policing and other public services. The extra resources are available to us not at the expense of prudence, but because of our prudence.
Within our fiscal rules and within the envelope that I set in the Budget, and have strictly adhered to, I can announce that spending on public services—what is called the departmental expenditure limit—is able to rise from £195 billion this year and from our previously planned £203 billion next year to £212.1 billion, then £229 billion, then £246 billion in 2003–04. By 2004, an extra £43 billion a year will be allocated to front-line services in our country. Sustained improvements in public services are now made possible because, with stability and strengthened economic fundamentals, lower debt interest and lower unemployment, we have sustained improvements in our public finances.
I turn now to the departmental allocations. In recent years, in addition to their conventional responsibilities, Britain's defence forces have taken on a new and valued role in international peacekeeping and in conflict prevention, promoting human rights and peace throughout the world, including in Sierra Leone and Kosovo. To complete the restructuring agreed in the strategic defence review, and to fund new equipment and increase the mobility of our front-line forces, defence spending, which has fallen in real terms every year since the end of the cold war, will now increase in real terms. The allocations are £23.6 billion next year, rising to £25 billion in cash in 2003–04.
The rise in the Foreign Office budget from £1.2 billion next year to £1.32 billion in 2003–04 will not only finance the proper representation and promotion of Britain abroad. My right hon. Friend the Foreign Secretary will also announce today that the British Council will receive extra funds, and the budget for the BBC World Service will rise substantially from £174 million this year to £180 million next year and £210 million by the end of the period in order to achieve our new target of 153 million World Service listeners by 2002.
Because we take seriously our international responsibilities to the environment, the Government are also announcing today a special £85 million fund to assist with the nuclear clean-up at Chernobyl.
The international community's clearest duty and greatest challenge is to halve world poverty by 2015 and to make primary education universal for every child. Our international aid budget will therefore rise from £2.8 billion this year to £3.1 billion next year, then £3.3 billion and £3.6 billion by 2004—a real-terms rise of 6.2 per cent. a year, in contrast to the falling share of national income devoted to overseas aid from 1979 to 1997, now a rising share of national income today and in the future, as we honour in full our commitment to debt relief, which is our obligation to the poorest countries of the world.
I turn to our second set of decisions—new investment to build stronger communities. The Home Office budget will rise from £8.2 billion this year to £9.6 billion next year, to £10.3 billion the year after and £10.6 billion in 2003–04, an annual rise in real terms averaging 6.4 per cent. a year. And tomorrow the Home Secretary will set out both his targets and how this allocation will be spent.
To implement fully the Good Friday agreement, an extra £316 million over three years will help fund the modernisation of policing and criminal justice in Northern Ireland, and in this way help underpin peace and future prosperity.
Every community in the land is weakened by the evil of drugs. In return for challenging new targets to cut drug-related reoffending by 50 per cent. over the decade and to treat twice as many addicts through the new National Treatment Agency, the new anti-drugs budget will be set at £870 million in 2002 and rise to £931 million and £996 million by 2004, an average annual real growth rate of 10 per cent.
Strengthening our local communities involves a new partnership with local government based on increased investment and new targets. The three-year settlement for local government—an annual real-terms rise of 3 per cent. over and above inflation—will be set out in full by the Minister for Local Government and the Regions, and Ministers in Scotland, Wales and Northern Ireland will make related announcements.
Local and national Government need to work ever more closely in a new partnership for reform and for improvement, particularly in our poorest areas. For decades, our whole country has been scarred by deep and persistent deprivation and underachievement in high-unemployment communities. While much previous spending has been directed to dealing with the consequences of economic and social failure, it is time now to invest in tackling the causes—poor school results, poorer standards of public health and low levels of economic activity.
Today, our poorest council estates suffer unemployment four times and burglary rates three times the national average, and mortality rates are 30 per cent. higher. These unjustifiable and divisive inequalities cannot any longer be tolerated. Both Government and communities must raise their sights, with a new target to raise up the poorest areas and thereby narrow the gap between these areas and the rest of the country.
So we will not only extend the new deal for communities but strengthen the institutions—from our schools to our health centres—on which these communities depend. In return for local service agreements that require new minimum standards in school attainment, public health, law and order and job creation, a new neighbourhood renewal fund will provide, by 2004, new resources worth £400 million.
In this spending round, housing—and our objective of decent affordable housing for all—will receive the priority it deserves and the resources it needs: an additional £1.6 billion of new investment by 2004, a real-terms rise averaging in this round 12 per cent. a year.
Across the social sector, we will ensure that half a million more houses will be modernised or repaired. This is part of a 10-year plan to eliminate all substandard housing; and, as we implement key recommendations of the Rogers report, reclaimed brownfield sites will account for 60 per cent. of new housing, creating thousands of new construction jobs.
Investment in the future must mean also investment in a cleaner environment. To meet our climate change commitments, the Minister for the Environment will announce how new resources will promote emissions trading and energy efficiency in Britain's homes. Further announcements will be made on the use of renewable energy and recycling by local authorities.
In rural communities, the new rural transport fund has extended the rural network, with 2,000 new or improved bus services. The rural transport fund will now be increased from an annual allocation of £60 million to £95 million; and there will be an announcement later of new finance available for maintaining the post office network in both rural and urban areas.
As farming restructures, deals with BSE and meets challenging targets to move from the old farm production subsidies to the new environmental improvement payments, the agricultural budget—including the Intervention Board—will increase from £1 billion this year to £1.35 billion by 2004, an average annual real-terms increase of 6 per cent. The Food Standards Agency will see its budget for its important work rise from £87 million this year to £111 million by 2004.
Extending access, particularly for our young people, to the arts and to sport will strengthen every community. With a 4.3 per cent. annual real-terms rise in the budget of the Department for Culture, Media and Sport, there will be significant improvement in funding for the arts. My right hon. Friend the Secretary of State for Culture, Media and Sport will give details of new funding to encourage children to use our libraries, museums and arts and to encourage sports, especially in schools and throughout our communities.
Strengthening communities of course involves strengthening our social services and our health service. The NHS plan will be announced next week. There will also be a major package of investment in services for

elderly people, including the Government's response to the royal commission on long-term care. My right hon. Friend the Secretary of State for Health will announce the detail of this and other allocations from the health and social services budget next week.
I can also confirm that, in the autumn, the Government will publish our proposed plans for a new pensioner credit, with a view to further announcements on a Budget timetable.
The strong civic society that we seek is built not by rights alone, but by rights and responsibilities. So we will match our Budget tax reliefs to encourage the giving of money with new measures today to encourage the giving of time. Extra resources of £60 million pounds by 2003–04 will have the clear aim of encouraging 1 million more of our citizens to be volunteers in community service.
I turn now to the investment that we must make in our economic future. Britain has great strengths. It is the best place in Europe to do business, with world-class companies in science and technology, but to build for the future we must put in place the long-term investment that is the precondition of a strong economy and of bridging the productivity gap with our competitors. We must avoid the short-termism of the past.
Working with business, the role of Government in the modern world is not to subsidise loss makers or to attempt to pick winners. The new role of Government is to invest in science and innovation, to promote competition and small business development, to encourage balanced regional development, to meet the pressing needs of transport and infrastructure and, most of all, to invest in those great drivers of prosperity—education and skills.
I deal first with investment in science. With our investment in a £1 billion public-private partnership with the Wellcome Trust to re-equip university science, and extra resources to support pioneering medical research that will be announced later, we will raise the science budget by 5.4 per cent. a year in real terms.
To ensure that invention in Britain leads to manufacturing in Britain and jobs in Britain, my right hon. Friend the Secretary of State for Trade and Industry will also announce new resources for a university challenge fund that commercialises inventions, and for university-based regional enterprise centres.
Britain's small businesses are the backbone of local economies. To offer the new services that businesses have themselves requested, the budget of the new Small Business Service will rise substantially, from just under £200 million this year to £277 million by 2004. That will include a national internet service offering comprehensive business advice and a consultancy service for start-ups. It will be worth up to £2,000 for start-ups in high-unemployment areas. As a result, the numbers of small businesses that employ people, which have already risen from 1.2 million in 1997 to 1.3 million now—a rise of 10 per cent. under this Government—can expand in every area of the country.
The newest and most decisive challenge in the new century, demanding higher levels of investment, is to master and lead in the new information technologies. To make Britain best for electronic trading and to bridge the growing digital divide, we have agreed a three-year programme of rapidly rising investment in our


communities and a new fund, which my right hon. Friend the Prime Minister will announce, to ensure that by 2005 Britain will have all Government services offered online.
Investment in innovation, infrastructure and skills is essential in every region if there are to be high levels of productivity in Britain and full employment throughout our country. To secure that balanced regional development, regional development agencies will receive additional resources, and their budgets will be increased by £500 million a year by 2003–04.
There will not only be new funds but new flexibilities, so that local people can promote local priorities and meet local needs they have identified. In the north-west, there is the regional plan to promote innovation and research; in the north-east, increasing entrepreneurship; in Yorkshire and Humberside, funds for small business development; in the east midlands, information and communications technology; in the west midlands, modern manufacturing; and in the south-east and south-west, as in Scotland, Wales and Northern Ireland, the promotion of clusters of growth. In every region there is new support for skills, for employment and for schools and colleges to promote enterprise open to all.
The overall settlement for Scotland provides for an increase of £3.4 billion a year by 2003–04, which is an annual real-terms rise of 4.4 per cent. A separate announcement will be made by the Scottish Executive.
For objective 1 areas in the United Kingdom—in Wales, Cornwall, Merseyside and South Yorkshire—and for objective 2 and 3 areas, I am today announcing a new approach that will raise their levels of investment. Within our departmental allocations that we are making today, the Government will ensure funding for the European share of objective 1, 2 and 3 projects. For European Union structural funds, that is estimated to total £4.2 billion over three years, including an estimated total of £600 million for new objective 1 programmes in English regions.
The settlement also increases funding for Wales by a total of 5.4 per cent. a year in real terms, and allows for match funding. It includes a special allocation to ensure funding of the European share of Wales's objective 1 needs—an allocation to Wales of £80 million, £90 million and £102 million over the next three years. I am also transferring management of the European social fund allocations of £149 million for Wales over the next three years to the Welsh Assembly.
It is because of the importance to all regions of modern transport and infrastructure that we will now make a step change in investment in public transport. In the Budget, we removed the automatic fuel escalator, and extra money was allocated to roads and public transport this year. Now we are able to raise spending on roads and public transport by significant extra sums to meet the needs of business and the public, from £4.9 billion this year to £6 billion next year, then to £7.4 billion and £9.1 billion in 2003–04, which is a real-terms rise of 20 per cent. a year to 2004. Details of the targets to improve bus and rail services and to cut road congestion, and of the allocation of funds, will be set out in the 10-year plan to be published by the Deputy Prime Minister on Thursday this week.
The modern economy can succeed only when it uses all the talent of all its people. Any potential squandered is a resource denied to this country's future. In this

review, we allocate new funds to advance our goal of full employment. For 70,000 employers, nearly 500,000 young people and for Britain, which has seen long-term youth unemployment fall by 70 per cent., the new deal has been succeeding and is a central building block for our policy of full employment. Long-term youth unemployment, which rose to 500,000 in the 1980s, is 50,000 today.
The windfall levy raised more than £5 billion, with £1.6 billion allocated to investment in our schools, and £3.5 billion to employment creation. Because the new deal has been even more successful than forecast, with more people getting back to work more quickly, there is an underspend that enables us to fund the new deal well into the next Parliament, and to transform what started as the new deal for the young unemployed into a permanent deal for all long-term unemployed.
Having helped 500,000 on the new deal, we now set plans to help the next 500,000. Next year and until 2003, I expect £1.7 billion to be available from the windfall levy to do more to coach the hard-to-employ young unemployed and systematically to create new opportunities for our long-term unemployed, nearly 1 million single parents and thousands of disabled men and women who want to work.
To bring both child care and employment within the reach of more parents, child care investment will rise from £66 million this year to £200 million by 2003–4, as we deliver, as we promised, our national child care strategy.
Because of our success in cutting unemployment, social security spending, which grew by 4 per cent. a year in the previous Parliament, is growing by 1½ per cent. a year this year and over the next three years, and the budget for unemployment-related benefits is falling.
To make further social security savings by tackling fraud and error, we are announcing new investment in staff and technology. Having cut errors in income support claims by half, we now plan to cut fraud and error in the jobseeker's allowance and in income support payments, first by 25 per cent. by 2004, and then by 50 per cent. Some, including the Leader of the Opposition, have proposed savings of £1 billion from social security fraud in the next Parliament. Our proposals achieve savings in excess of £1 billion.
I turn now to investment to ensure that all children have the best start in life. Today's children will be tomorrow's doctors, scientists, engineers and nurses—our future work force in every area. By investing in children, we are investing in our country's future. We have invested £7 billion a year more in families during this Parliament, raising child benefit by 35 per cent. and guaranteeing a minimum family income under the working families tax credit; and from next April, the new children's credit will be worth £442 a year to the typical family.
It is now time to take further steps. The war against child poverty requires not only additional cash but the support and encouragement of all forces of care and compassion in every community. It can be won only by the combined efforts of parents and the private, voluntary, charitable and public sectors working together. In a unique initiative, after consultation with charities and voluntary organisations, we will create a national children's fund with a budget over three years totalling £450 million, to help children and young people at risk.
The children's fund will work with national children's charities and local community organisations, secular and faith based, and will support those dedicated staff and committed volunteers who offer one-to-one help to young people and to parents at risk, and £70 million will be allocated to a network of local and regional children's funds.
I turn to investment in education. With the funds that my right hon. Friend the Secretary of State for Education and Employment allocated from the first spending review, he has made major reforms in education, ensuring nursery education for every four-year-old; cutting class sizes for five to seven-year-olds; raising literacy and numeracy standards for 11-year-olds by 6 and 10 percentage points; and reforming and expanding higher and further education.
Education qualifications are, in the modern world, the surest route to opportunity and security for all. All children should be ready to learn when they reach school. From the first spending review came sure start, which is now lifting 50,000 children and their parents out of poverty.
In the second review, and tied to targets for improving child development and parental responsibility, we will by 2004, with a budget of £500 million, expand the number of children helped in our country to 345,000. With nursery places already increasing from 200,000 in 1997 to 400,000 in 2002, my right hon. Friend the Secretary of State for Education and Employment will announce funds for the next stage in our expansion of nursery education.
Having improved standards in our primary schools, the next task is to raise standards as decisively in the secondary schools, so the expansion of resources that my right hon. Friend will announce for all schools is designed to back up reform and to bring radical improvement in the comprehensive system to ensure that opportunity for all means the highest standards of education for all.
My right hon. Friend will consult on and fund a new target for our secondary schools: by 2007, not today's 60 per cent., but 85 per cent. of 14-year-olds must meet literacy, numeracy and computer standards. To raise Britain's appallingly low staying-on rate at school, we are setting aside £150 million a year for education maintenance allowances worth up to £40 a week. Our new and challenging target is: by 2004, 80,000 more 16 to 18-year-olds in education and nearly 60 per cent. of young people having left school or college with A-levels or their equivalent by age 21.
Under the new deal for schools, 17,000 of our schools will have had some improvement, modernisation or renovation by 2002, and every one of our schools—32,000 of them—will be linked to the internet by that date. Our objective by 2004 is 500,000 more computers in our schools. By 2010, we want the majority of young people to be going on to higher education. My right hon. Friend is allocating £100 million extra to higher education in 2001–02, a 4.6 per cent. real terms increase in total. The review provides further finance that will raise the numbers in part-time and full-time higher and further education towards that goal of 50 per cent.
State pupils secure two thirds of the top A-level qualifications, but only half the places in some of our leading universities. To bridge that gap, the Secretary of State for Education and Employment is today setting a new objective to improve access. The Higher Education

Funding Council for England will provide financial help for universities submitting plans for year-on-year improvements in the widening of access.
Two million adults have a reading age of seven or lower. Adult illiteracy is not just a failure of our society, but—as business leaders around the country have told me—an economic inefficiency that the country cannot tolerate. In the coming weeks, the Secretary of State will announce the provision of new resources to tackle those barriers to opportunity and earnings.
The best education for all, from early learning to lifelong learning, is not only a time-honoured social ideal but, in today's world, an absolute economic necessity. That is why we have decided to make increased investment in education the priority of this year's review, and to back sustained long-term reform with a sustained increase in resources.
In the Budget I was able to allocate new resources to the national health service, amounting to a rise of 6.1 per cent. a year in real terms over the four years to 2004. I was also able to allocate an additional £1 billion to United Kingdom education for this year. Today, in return for the new targets for improved standards, we can allocate further resources for UK education for the next three years.
Under the last Government, UK education spending rose by an average of only 1.5 per cent. a year in real terms. Over the next three years, it will rise by 5.4 per cent. in real terms. Spending will rise from last year's £40.6 billion and this year's £45.8 billion to £49.5 billion, £53.4 billion, then £57.7 billion. The money that I have announced in the Budget and today will deliver, over the four years from now until 2004, an average annual increase of 6.6 per cent. in real terms—an annual rate of growth far in excess of the 1.5 per cent. achieved from 1979 to 1997.
I have one further and final announcement to make. In March, the Secretary of State for Education and Employment made special payments direct to head teachers for books and equipment. They ranged from £3,000 to £9,000 for primary schools, and from £30,000 to £50,000 for secondary schools. A total of £290 million went direct to head teachers, to be spent by schools for use in the classroom.
The Government have decided to continue that innovation, but next April the Secretary of State will allocate to our head teachers not £290 million but £540 million. As a result, head teachers in every one of our smaller primary schools will next year receive not £3,000, but a payment of £6,000. The larger primary schools will receive not £9,000, but £20,000. For the smaller secondary schools there will now be payments of £50,000, rising, for the larger secondary schools, to £70,000. Those payments will now be made not just for one year, but for every year until 2004.
We have made our choice: improved investment in health, education, transport and social services, and in our communities. It is now for those who oppose our spending plans to state clearly where their cuts would fall. This Government have been prudent for a purpose. Our


choice is stability, employment and sustained long-term investment, now and into the next Parliament, to create a Britain of security and opportunity for all.
I commend this statement to the House.

Mr. Michael Portillo: As usual, I draw attention to my entry in the Register of Members' Interests. [HON. MEMBERS: "Ah!"] At least I am honest about it.
I believe that:
The level of public spending is no longer the best measure of the effectiveness of government.—[Laughter.]
I was quoting from the Labour party manifesto. [Interruption.] Labour Members roar. It is in there. That is the basis, that is the commitment, on which the Chancellor of the Exchequer fought the last election campaign. Was the Chancellor being insincere with us then, or is he kidding us all now? Either way, who can believe a word that he says now?
Does the Chancellor recall promising, two years ago, £40 billion to transform health and education and to tackle crime? If Labour Members believe that the £40 billion that he has announced today will save their seats, they should remember that the previous £40 billion did not improve public services. This £40 billion will not improve public services, because Labour's spending is not working. Today the Chancellor announced lots more targets. The history of the Government is that they have dumped the targets that they cannot meet.
Another gem in the Labour manifesto was its commitment that the Labour Government would be
wise spenders, not big spenders.
Now, that is all turned around. Now they are going to be big spenders, not wise spenders, because we are all paying for their failure to reform welfare. We are all paying for their distortion of the clinical priorities in the national health service—distorted by a Government obsessed with spin. We are paying for their failed policies of interference in education. Here is the Chancellor today offering titbits directly to schools. Why does he not give the vast majority of the money directly to schools, as we propose to do? We are still paying for the dome. Is it any wonder that the Labour Government—[Interruption.] Oh yes we are. Is it any wonder that the Labour Government tax more and deliver less?
Does the Chancellor remember that the last time he spoke to us, he said:
if we don't spend the money well, people will suffer.
Well, people have suffered. Their taxes have gone up, but public services have got no better. Hospital waiting lists are up. Class sizes are bigger. [Interruption.]

Madam Speaker: Order. I would be obliged if the House would come to order. The House was not always in good order for the Chancellor, but it was for most of the time. I expect the same for the Opposition spokesman.

Mr. Portillo: Hospital waiting lists are up. Class sizes are bigger. Today the Government have released the most appalling figures for violent crime. How can they spend so much, and spend it so badly?
Today the Chancellor tells us that spending will be tied to output. If that is the case, what has he been doing in the past? There is never any danger of this Chancellor "underspinning", as he said today. Having broken all his promises before, does he really think that the solution is to make promises again?
The Labour party fought four general elections on a policy of tax and spend. Those are the four general elections that it lost. The only time that Labour won an election was when it committed itself—or appeared to commit itself—to Tory prudence.
Let me remind the House why the Chancellor has so much money in his election war chest today. [Interruption.] Labour Members do not want to hear about that. Is it not because he has taken £5 billion a year out of people's pension funds? This is a Chancellor of the Exchequer who, for his own glorification, is prepared to spend today at the cost of impoverishing generations of pensioners tomorrow.
Does not the Chancellor have the money today only because he has relentlessly increased taxes? Petrol has now reached £4 a gallon, and council tax has increased four times faster than inflation. Tax relief for mortgages has gone, and tax relief for marriage has gone. The additional age relief for pensioners has gone, too. Does not the Chancellor realise that, for families and pensioners, the tax increases that he has imposed are reality today, and that all the fine words that we have heard from him are merely promises for tomorrow?
Did the Chancellor really think that people would not notice that they were being taxed? Did he really think that he could put an extra £670 of tax on average working families in this country and they would not notice? For many families, that is the difference between living comfortably, and life on the edge. It is the difference between getting on and getting into debt—[Interruption.] That is the real world. How out of touch can the Prime Minister and the Chancellor of the Exchequer be?
Is it not true that those who can least afford it have been taxed and taxed until the pips squeak, with taxes on alcohol, taxes on cigarettes and taxes on petrol—the most regressive taxes of all? [Interruption.] Labour Back Benchers know what has happened, and they know that a Labour Chancellor who taxes the poor is no socialist hero. I believe that hard-working families and pensioners should pay less tax than they do now, because Governments—[Interruption.]

Madam Speaker: Order. Many of the people of this country will be watching us, and many will certainly be listening. Tomorrow, I shall get many telephone calls and letters about the extremely poor behaviour in this Chamber.

Mr. Portillo: I believe that hard-working families and pensioners in this country should pay less tax, because Governments often waste their money. I do not believe that it is morally superior for the Government to take money away from parents—money that they might have spent on their children, or on putting a better meal on the table.
A Conservative Government will cut taxes for those people, because families need lower taxes and businesses need lower taxes. When Governments all over the world are cutting taxes, how else is Britain going to compete?
Despite the revisions that the Chancellor announced today, can he confirm that he still assumes that national income will increase by 2¼ per cent. a year, yet commits himself to increase overall national spending by 3.3 per cent. a year? Would any family in the land plan to go on increasing their spending, year after year, by more than the increases in their income?
Is not the Chancellor's plan just a spending splurge? He will increase spending by almost l½ per cent. of national income, which is the equivalent of £600 of extra tax for every taxpayer. Is it not true that the budget surplus can be spent only once, and that when we have spent that surplus, we are back on the road to higher taxes?
What happens if the future is not quite as rosy as the Chancellor thinks it will be? Is he committed to all the numbers that he has just given us, whatever may happen to the economy four years from now?
We shall study the Chancellor's remarks very carefully. Although he claimed to be "underspinning" today, he will have to admit that every previous statement he has made included double and triple counting, and many hidden surprises. Now, the Prime Minister's notorious leaked memo has displayed the cynicism deep at the heart of this Government. When people trust them so little, who knows what we shall find in the small print?
We shall find out what constitutes genuine investment in our future, and what, on the other hand, risks being wasted by a Government who are now spending £11,700 every second. I trust that we shall find many things to be welcomed, just as we welcomed the extra money for the health service that the Chancellor announced in the Budget statement.
The Chancellor has taken time to prepare his plans, and we shall take time to prepare ours. However, our framework is more prudent than his. We can and we should increase spending in real terms on the things that really matter to people, but we should do that at a sustainable rate. Steady increases above inflation and within the growth in the economy can be combined with tax cuts for hard-working families and for pensioners. Are these not now the dividing lines?
We will fight the next election as the low-tax party. Labour has been exposed as the high-tax party. What Britain needs is not a splurge of taxpayer's money from a Government whom people do not trust, but a sustainable policy for the long term. Labour Governments always end up with tax and spend. A Conservative Government would tax less and spend better. A Conservative Government would show common sense and prudence.

Mr. Gordon Brown: I take it that the right hon. Gentleman is against our spending plans. I think that the most relieved man in the House this afternoon is the Leader of the Opposition—except for the fact that he has had landed on him the policies of the shadow Chancellor.
This afternoon we have heard an extraordinary statement from the shadow Chancellor, because he has refused to match any of our spending commitments. He has refused to match the £11 billion extra that we are spending on education, so in every constituency in the country Opposition Members will have to answer to parents, teachers and others about the Tory education spending cuts guarantee.
The right hon. Gentleman has refused to match the £8 billion extra for public and private improvements in transport, so Conservative Members will have to answer

for their transport cuts guarantee to all the road users, all the car owners and all the people who depend on public transport. The shadow Chancellor has even refused to match my right hon. Friend the Home Secretary's spending on combating crime, so they will have to answer for a guarantee of spending cuts on law and order, as well.
When the shadow Chancellor went round the television studios at the weekend and said that our spending was unsustainable and, as he repeated today, that it was a "splurge", that Labour was a party that could not be afforded, and that the rate of spending in this country should be 2 per cent. not 3.3 per cent., he was actually saying that public spending should be cut by £16 billion by year four. He cannot escape from that, try as he might. Throughout the country he will have to say which school, which hospital, how many teachers and how many nurses would be affected by his proposals. When Conservative Members go back to their constituencies this weekend, they will have to give the answers.
There is another point. In 1992 the shadow Chancellor imposed 22 tax rises. He is now threatening £16 billion in cuts. I am happy to have our record compared with his when he was at the Treasury. He talks about taxation, but the biggest tax rises took place when he was there. There were 22 tax rises, including VAT on fuel, the rise in national insurance, the airports tax, and the reductions in mortgage tax relief and the married couples allowance. He is not the answer to the Conservatives' problems on tax; he is their problem on tax.
The shadow Chancellor says that he will be prudent. We have reduced the national debt. When he was Chief Secretary the national debt rose by £80 billion. It rose by the fastest rate in years, as the Conservatives doubled the national debt. The right hon. Gentleman says that he does not want to borrow, but when he was at the Treasury borrowing rose from £20 billion to £50 billion—and we have had to sort out the difficulties. We take no lectures from the Conservative shadow Chancellor given that he was responsible not only for tax rises but for borrowing at record levels and doubling the national debt.
There is another reason why we will not take lectures from the right hon. Gentleman this afternoon. In the 1980s the Conservative Government of whom he was a member refused to invest in our country—in education and infrastructure—and blew the privatisation of North sea oil revenues, which led us to the underinvestment and the problems that emerged with boom and bust in the early 1990s. The Conservative party cannot now tell us that it has a solution to the problems of this country, while the Labour Government are having to deal with their legacy of underinvestment to sort out those problems.
Only a few weeks ago, the shadow Chancellor's tax guarantee—it was a guarantee, then—was the issue of the moment, and he was trying to prove that resources were available. Instead of saying that the economy was running into ruin, that it was unsustainable and that things were getting out of control, he said on the Jimmy Young show:
The economy is doing well. There is absolutely no denying that, and I am not going to go around saying that the economy is not going well.
In another speech, he praised us for an "absolutely reliable anti-inflation strategy". How is it that immediately after the Budget, with exactly the same figures for the framework for public spending, he could praise us for our anti-inflation strategy and say that the economy was doing well—but today he comes to the House to predict doom and gloom?
As we have seen in the seven days since its spending announcement, the Conservative party has resorted to its old ways. It is not prepared to finance education. It is not prepared to finance health as it should be financed. It is not prepared to finance our social services. When the shadow Chancellor left the House of Commons, he said that the Conservative party was identified as uncaring, harsh and not concerned about unemployment, poverty or social conditions—yet it is a return to that Thatcherite policy that he is presuming today.
The shadow Chancellor lost the last election with 22 tax rises. He will lose the next election with £16 billion of public spending cuts.

Mr. Giles Radice: The Treasury Committee will want to question my right hon. Friend on his statement, as he knows, but is it not the case that his announcement of significant but affordable public spending increases is a vindication of the Government's economic policies? Does it not show that the Government's restraint in the first two years in office, the new monetary framework and the steady economic growth have led to a virtuous circle of low inflation, low public debt, and now the increased public spending in vital areas such as education and health that we have heard announced this afternoon?

Mr. Brown: I am grateful to my right hon. Friend. He is the distinguished Chairman of the Treasury Committee, and he says that the economy has been put on a strong foundation. The figures show that 42 per cent. of additional expenditure under the Conservatives went on social security and debt interest, but that only 17 per cent. will go on those things under the new spending plans. That is a recognition not only that the public finances are in order, but that we are using them to best effect. I shall give the House the benefit of further information. Under the regime of the former Chief Secretary to the Treasury, who is now the shadow Chancellor, it was not 42 per cent. but 55 per cent. that went on social security and debt interest. More than half the expenditure went on social security and debt interest. Today, most expenditure goes on health, social services, education, transport, tackling crime and building a better Britain.

Mr. Matthew Taylor: Millions of people will have had one question in their minds as the Chancellor sat down: what about the pensioners? With £43 billion to spend, the Chancellor's Budget in March, with its 75p a week for pensioners, looked miserly; now, with a £2.5 billion surplus in the social security budget, his zero increase for pensioners looks positively mean.
As for the rest of the statement, no one will accuse the Chancellor of underspinning. The shadow Chancellor may be underperforming, but the Chancellor is not underspinning. However, the question that the Chancellor must answer is whether his statement today was effectively an admission that what has happened in the past three years was unnecessary, that Liberal Democrats were right to say that the Government were building an election war chest, and that—contrary to what the shadow Chancellor said—what we suffered from was the problem of having had a Conservative budget in the early years of this Parliament, and the costs that it imposed on

pensioners, pupils, patients, the police and public services as a whole. This is bust-boom economics; this is exactly the treatment of public services that Liberal Democrats have predicted for the past two years, because it was there for all to read.
The irony of the shadow Chancellor's position is that this Budget will only bring Government spending, as a proportion of national wealth, back to the level they inherited from the previous Conservative Government, having cut it in the early years by following Conservative Budgets. That is not what people voted for, and it was a wasted opportunity. The statement makes that absolutely clear. We have bust-boom treatment of the public services.
The Conservatives now offer £20 billion of cuts while the Liberal Democrats welcome increased investment in public services, even if it is late. However, will the Chancellor guarantee it? In the previous comprehensive spending review, he gave figures that we now know were not true. For example, he said that there would be a 5.1 per cent. increase in spending for education. We know now that last year, schools received only a 2.5 per cent. increase. The spin is all there, but where will the delivery be? It is not there for pensioners. Will it be there for the police? Is the Chancellor able to tell us whether there will be more police on the beat at the end of this process than there were when he came into office?
Will the right hon. Gentleman get rid of tuition fees? Is he able to guarantee lower class sizes for all children, and not only for those up to the age of seven? Or will the position continue to worsen, as it has so far since Labour took office? Can the Government even guarantee that tuition fees are not set to rise to help pay for their higher education policy?
The 18 years of Conservative government were a disaster for public services. However, the early years of the Labour Government left Conservative policies in office. The bust-boom approach is not a sensible way of handling public service investment. It never was, and the Government's cynicism showed through in every sentence that the Chancellor read out. No wonder the Prime Minister's memo did not mention the Chancellor. There never was any chance that the Chancellor would underspin. He follows the same agenda of trying to win elections at the cost of public service.
We will scrutinise the figures because we know that on every previous occasion, the Chancellor has sought to mislead. We want to show pensioners that the Government had the money to give them a decent pension and have not delivered. I suggest to Labour Members that when the leave this place, they will experience the anger of pensioners because they are still left with 75p. That will be the greatest single legacy from the Chancellor's statement.

Mr. Brown: At the general election, the Liberal Democrats stood on a manifesto that stated that they would put £500 million more every year into the national health service. Under our plans, we are putting £13 billion more a year into it. The Liberal Democrat manifesto stated that they would put £1.9 billion extra into education. Under the new plans, there will be £10 billion extra a year. The Liberal Democrats said that they would raise the pension only in line with inflation. They also said in their manifesto that they supported a minimum income guarantee.
Now we have the shopping-list approach to economics, which has been adopted, unfortunately, by the Treasury spokesman for the Liberal Democrats. He wants in one part of the country to say that he is doing this, while saying in another part that he is doing that. In other parts of the country, he wants to appease particular groups. He tries to coin a new line about bust-and-boom economics, but that sits uneasily with the fact that we have put public finances in order. The national debt has been reduced and the borrowing that we inherited has been eliminated. Debt as a proportion of national income is falling, and we are now able to have sustained and sustainable improvement in our public sector services for the years ahead. That would not have happened under the Liberal Democrats' policy.

Mr. Alun Michael: I welcome the fact that my right hon. Friend's announcements today address Labour issues from the international to the local. In particular, his announcement on the new deal will give opportunities to young people as individuals.
My right hon. Friend will be aware that the announcement has been particularly awaited with interest in Wales. Will he confirm, not least for the right hon. Member for Caernarfon (Mr. Wigley), that his settlement enables the National Assembly for Wales to spend in full the money available to Wales under objective 1 without cutting into education and health spending? Does it also provide the necessary flexibility for the Assembly to deal with matters such as match funding?

Mr. Brown: I am grateful to my right hon. Friend. The settlement does exactly that. I am grateful to him for the work that he has done and I am grateful to all his colleagues who are Welsh Members of Parliament. The Welsh objective 1 settlement ensures that the resources are there to move ahead. The Wales Office expenditure is rising by 5.4 per cent. in real terms, something that could never have happened under Plaid Cymru policies.
Equally, my right hon. Friend is right to say that we have been spending money in Wales on the new deal and the working families tax credit in a way that gets money to the communities that need it most—an allocation of public expenditure that is most important to areas of high unemployment. In total, we are spending £231 million on the new deal and the working families tax credit. Taking into account the Barnett formula, the additional money for objective 1 spending, which my right hon. Friend has urged—as have many others over a period of time—and the £231 million expenditure on the new deal and the working families tax credit, this is not only a good settlement but one that will help Wales to invest in its future and to invest to create a Wales of full employment.

Mr. Kenneth Clarke: Will the Chancellor, who strives for a reputation as a serious policy maker, agree that no one, including himself, can predict accurately now the course of the economic cycle or the growth in the British economy during the next four years? The Chancellor is never knowingly underspun when he is surprised by changes that are favourable compared with his forecast, but will he accept that, if the forecasts go wrong, he does not know the extent to which he might have to raise tax, the extent to which public borrowing will go up, the inflationary pressures that might be caused and the extent

to which he might squeeze out private sector investment in business by what he has announced? Is not the explanation for a statement in which I do not think Prudence was mentioned once—[Interruption I am told that she had four sad and parting mentions.
The reason for these U-turns and the bran tub approach of throwing money at every problem is that the right hon. Gentleman's colleagues have become panic stricken that big numbers and big promises two years ago have delivered nothing, so they now hope that big numbers and big promises beyond the next election will deliver them a return to office.
If the Chancellor wants to turn to serious policy making, does he accept that the future that we want and the strength of our public services, as well as our jobs and well being, depend on sustaining growth with low inflation and healthy public finances, which he and I have been lucky enough to enjoy at the Treasury for the best part of seven years now? If he wants to sustain that, he should run a surplus at this stage of the cycle and wait, year by year, to see the course of economic events, and release money sensibly to finance public services when he has the money in his pocket.

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I appreciate the right hon. and learned Gentleman's vast experience in this matter, but that was too long a question.

Mr. Brown: The former Chancellor is forgetting that he left behind a legacy of a £28 billion borrowing requirement, debt at 44 per cent. of national income, inflation rising, the economy heading back to stop-go and even the shadow Chancellor after him predicting that there would be a recession. We had to tackle the issues and reduce the debt. So far from us praising him for the legacy that he left us, he should be more humble about what he achieved when he was at the Treasury.
I was wanting to agree with the right hon. and learned Gentleman because he put up a better show than the shadow Chancellor, but I have since heard that this afternoon, he said on television that VAT on fuel should now be raised to its full amount—something which he says will happen soon. Again, we remind ourselves that two of the Ministers who were responsible for that policy have spoken in the House this afternoon. If the right hon. and learned Gentleman wants to reject three-year planning for public spending and to go back to the old annual cycle, he should remember that there were huge losses in that, with end-of-year settlements that did not work properly. Local government, the health service, education and transport need a long-term framework within which to move ahead.
The right hon. and learned Gentleman talked about the economic cycle. We have met, and will meet, our fiscal rules, even on the most cautious case. We have an £8 million surplus in the current side, even in the year when the surplus is lower, and we have reduced national debt from 44 per cent of national income to 33 per cent. Therefore, the investment can be made on a sustainable basis. I would have expected someone who said that his own spending plans were "eye-wateringly tight" when he passed them on to us would want to praise the fact that we are now spending the sums that I would have thought he wanted to spend on education, health, transport and the public services.

Mr. Robert Sheldon: Is it not clear that my right hon. Friend came to office with a


three-year programme to put the public finances in order and then to turn to investment? He said that money would he spent to ensure that output and investment were achieved; this is his third test and his track record so far makes us optimistic.

Mr. Brown: Yes; I am usually talked of in the context of five tests.
The first thing we had to do was to create stability. The second thing we have to do is to get people back to work. The new deal, which the Opposition would abolish, is a programme that is helping thousands of young people and the long-term unemployed back into work. I would have wanted an all-party consensus on moving forward on this issue. Instead, the Opposition are determined to abolish the new deal and to deprive young people of the chances of jobs.
The third thing we have to do is to invest to build a stronger economy and a stronger society. That is exactly what my right hon. Friend has spent much of his political career advocating, particularly in relation to productivity and output in the manufacturing sector of the economy. The funds that we are making available for training, education and science, and the funds for regional development agencies so that we can build up our regions, are one way in which we can build a stronger industrial base for the future, in accord with the ambitions that my right hon. Friend has always furthered, on which I congratulate him.

Mr. David Davis: I should like to follow on from the Chancellor's comments on investment. I think I heard him say that the target for net investment will increase from £7 billion to some £18 billion in the next two years. The House of Commons Library tells us that his target last year was £6 billion, but the outturn was less than half that, at under £3 billion. How will he make the promise turn into delivery?

Mr. Brown: Here is a Conservative accusing me of spending too little, rather than too much. Over 20 years, Departments have not been in the business of moving forward investment plans as quickly as we want. We have also innovated in many areas including, following the last Government, public-private partnerships. I believe that the momentum is now there, particularly in transport, where investment is needed. Public-private partnerships in the London Underground and elsewhere have been developed. Therefore, I believe that we can make progress in these investment plans. Given what the right hon. Gentleman says, I hope that, in contrast to the shadow Chancellor, he will support us in them.

Dr. Gavin Strang: It is to my right hon. Friend's credit, and to the credit of this Labour Government, that the country's finances are in such a healthy state.
Does my right hon. Friend recall that in his last comprehensive spending review, he announced a proposal partially to privatise our air traffic control system and a timetable for the partial privatisation of DERA, the Defence Evaluation and Research Agency? Does he agree that the country's finances are much better than could have been imagined in 1998? Against that background, will the

Government reconsider their decision to privatise key strategic assets such as National Air Traffic Services and DERA?

Mr. Brown: This is a proposal to get new investment into air traffic control. It is a proposal to secure massive investment funds which everybody knows are needed for the future of the air traffic control service. It will raise money from the private sector, but involve a public-private partnership. The same goes for DERA where, again, we are getting new funds in so that we can have the necessary investment in equipment and technology for the future.
This is about investment; about building for the future. In the air traffic control business, it is about building alliances right across the continents. I think that when the final plans are eventually implemented, we shall have the investment that we need in air traffic control and in DERA.

Mr. Peter Brooke: Will the Chancellor remind the House of the annual real-terms growth rate over the three years for defence spending?

Mr. Brown: The annual rate is 0.3 per cent. in real terms over the next year. I take it from what the shadow Chancellor said that he cannot even support that.

Mr. Tam Dalyell: What was the financial message that Sir Charles Guthrie, Chief of the Defence Staff, took to Downing street some two weeks ago? Is the real-terms increase in defence expenditure really sufficient to meet the long-term demands of our commitments in Kosovo and Bosnia? A fortnight ago, when some Albanians under the protection of British troops were asked how long KFOR and the British Army were expected to remain, some of them said 20 years and others said for ever. Has the Chancellor built in that long-term commitment to the Balkans? We have it now, whether people wanted it or not.

Mr. Brown: We have regular meetings with the Chief of the Defence Staff to talk about defence issues. I believe that this is an important settlement which allows our defence forces to complete the strategic defence review which was started by Lord Robertson and which is now being continued by my right hon. Friend the Secretary of State. It provides funds to buy new equipment and to replenish what has to be replenished after Kosovo. It provides funds to ensure the retention and recruitment of staff and to help our international peacekeeping role. As my hon. Friend knows, in normal terms, Bosnia and Kosovo become claims on the reserve.

Sir Peter Tapsell: If the pre-election bonanza that the Chancellor has just announced is to be regarded as economically sound, why has it been necessary for the Bank of England to raise interest rates repeatedly in recent months, causing great distress to British export manufacturing industry and to British agriculture?

Mr. Brown: I always enjoy discussing the economy with the hon. Gentleman because he seems to forget that when the shadow Chancellor was Chief Secretary, interest rates rose to 15 per cent. and remained there for a year. Interest rates are now at 6 per cent., and I remind him that the Bank of England had the Budget announcements,


which were the framework within which we made our decisions. It said that the result of the Budget on interest rates seemed unlikely to be large over the next two years. All the framework figures were given to the Bank of England. The framework figures on which the decisions were made in the public spending round were announced in the Budget.

Mrs. Anne Campbell: I warmly congratulate my right hon. Friend on his statement, in particular the extra resources for education and science funding, which will be warmly welcomed in my constituency. Will my right hon. Friend ensure, perhaps using his considerable influence, that the extra funding for education is distributed in a way that makes the total funding for each pupil more equitable than at present?

Mr. Brown: This is, of course, a matter for my right hon. Friend the Secretary of State for Education and Employment, who has done a superb job in recent years building up our education system. I believe that he will look at such decisions carefully. I praise my hon. Friend for her work to promote the case for science in our country. It is important to ensure that sufficient funds are spent on science and innovation so that we can build the best productive base for the future. It is also important that investment in education and our schoolchildren is made at the necessary level. It is unfortunate that the Conservative party does not even seem to support education spending now.

Mr. Dafydd Wigley: Why has the Chancellor not taken this opportunity to pass over to Wales the whole of the European structural funds meant for Wales, over and above the Barnett block limit? Of the £540 million coming from Brussels to Wales for objective 1 funding over the next three years, only £272 million has been passed over and £268 million is being pocketed by the Treasury. In other words, the right hon. Gentleman has conceded the principle but kept the cash. Is not the First Secretary right to say that Labour will pay a heavy price for this at the coming general election?

Mr. Brown: The right hon. Gentleman should be man enough to say that we have done a good job and sorted out the problem of objective 1 funding. Wales has a 5.4 per cent. real terms increase in its budget, which is higher than it ever had under a Conservative Government. It is something that the right hon. Gentleman's party could never have delivered had it been in power in the Welsh Assembly or anywhere else. I notice that in the candidatures for leadership, Plaid Cymru is now descending back to being a wholly separatist party, and the right hon. Gentleman should be embarrassed by that.
The Labour Government are putting into the spending settlement the resources needed for the objective 1 programme to be carried out. It is those resources that enable the European funding and provide the matching funding through the spending settlement we have made. In addition, through the windfall tax on the privatised utilities, more money is being spent on the new deal and the working families tax credit in Wales—something that the right hon. Gentleman's party could never have achieved. The fact is that unemployment is coming down in Wales because of a Labour Government.

Mr. Barry Jones: I note the advance towards full employment and I thank my right

hon. Friend for that and for his plans for decent social services for all of our people. However, what are his plans in the coming years for assisting manufacturing, not least the steel industry and Shotton steel works in my constituency? Does he recollect the £530 million he has given to British Aerospace for the A3XX project, and does he know that I have so far failed to persuade the First Secretary to give £25 million to secure 1,400 new jobs? Will my right hon. Friend use his famed skills of persuasion in Whitehall—using metaphorically the twisted arm and the steel-capped boot—to persuade the First Secretary to give that money and secure those jobs?

Mr. Brown: My right hon. Friend's congratulations have an edge. On manufacturing industry, it is true that we have helped the British aerospace industry, and that matters to his constituency and others around the country. We will continue to support new projects that can yield jobs, investment and growth for our economy in the future. I acknowledge that the difficulties with the pound have caused problems for many sectors of manufacturing, including the steel sector, but at the same time manufacturing productivity has been rising by 5 per cent. We have put in place more measures today, including, first, a research and development tax credit so that we finance a substantial part of the investment in new technology and innovation by manufacturing firms. Secondly, we have put 100 per cent. capital allowances in place, so that small and medium-sized firms can claim all that against their tax in the first year. Thirdly, we have put in place regional investment and venture capital funds, which will be of assistance in Wales and other parts of the country.
In terms of stimulating new investment in the manufacturing economy, we are doing what we can and will continue to do so. I can tell my right hon. Friend that even manufacturing firms under pressure say to me that the last thing they want—and what we are avoiding with our policies—is a return to Tory boom and bust.

Mr. John Redwood: Far from the Chancellor offering to many Prudence, with a purpose or without, he has clearly cast her off cruelly. Is he ashamed that he imposed such a massive tax on petrol? Was not that a mugging with a menace that turned out to be totally unnecessary in view of the figures that he has published today?

Mr. Brown: I thought that the right hon. Gentleman was leading the Tory campaign in the House and in the country, but he has started by scoring a massive own goal. Who put the fuel escalator on petrol? It was the Conservative party. Who took it off? It was the Labour Government.

Mr. Dennis Skinner: Is the Chancellor aware that some 22 years ago, the previous Labour Government made a statement that resulted in pay freezes and cuts in the budgets for health and education? It was met by some weary, drooping heads on this side of the House. This statement, whichever way you cut it, is a sight better than that one. When I hear my right hon. Friend talk about an extra 3 per cent. above inflation for this Department, an extra 4 per cent. above inflation for that Department and an extra 5 per cent. above inflation


for yet another, I can only assume that the pensioners will also get 3, 4 or 5 per cent. above inflation. Will he confirm that?

Mr. Brown: My hon. Friend tries to draw me into something that is a matter for further consultation. Unlike the Conservative party, we will keep the winter fuel allowance and pay that £150. Unlike the Conservative party, we will ensure that the free colour television licences goes to pensioners and the minimum income guarantee rises in line with earnings to take thousands of pensioners out of poverty. For further announcements, I hope that my hon. Friend, who has been patient for 22 years, will continue to be patient for at least a few more days and weeks.

Mr. Michael Jack: Can the Chancellor confirm that today's announcement on spending levels is predicated on the figures in the "Financial Statement and Budget Report" for tax receipts and total Government receipts maintaining their increasing percentage share of GDP? On the question of fraud, as a Chancellor interested in outcomes, will he explain to the House why the Department of Social Security has so far failed to meet any of its fraud targets?

Mr. Brown: The Department of Social Security has just cut the number of inaccurate income support payments by half and has made considerable savings as a result, which is something that, unfortunately, the Government of whom the right hon. Gentleman was a member failed to do when in power. On tax revenues, the right hon. Gentleman should consult the Budget documents; he will find that the tax share of national income, which has been 37.1 per cent, 37 per cent and 36.9 per cent, is 36.7 per cent in 2003–04. The right hon. Gentleman should consult the appropriate table on that matter.
The problem for the Conservative party having dropped its tax guarantee, is that, nobody trusts it at all on the issue of tax. As a result of its failure to spell out its public spending cuts, every public service, from education to health, transport, housing and social services is now seen to be vulnerable. It is the same old Tories.

Mr. Bill Rammell: May I tell the Chancellor about Brays Grove school in my constituency which, having had to wait 10 years under the Tories to refurbish its science labs, has now received £325,000 under the new deal for schools? Does my right hon. Friend agree that, as a result of this afternoon's statement, other schools in my constituency are likely to benefit in future? Is it not that increased investment in our schools which is most at risk from the return of a Conservative Government, as the Opposition are committed to cut those increases? Is not the most dishonest aspect of the politics that the Opposition are putting forward the fact that they are calling for cuts but are never prepared to say where the cuts will be imposed?

Mr. Brown: The shadow Chancellor came to the House this afternoon for the traditional occasion on which he replies to the statement, and says what he agrees with and what he does not agree with. He was unable to tell us that he would protect even the education budget, and he

has put his party in a sorry state because, over the next few days, right across the country, Conservatives will have explain to parents and teachers why education is not safe from the £16 billion of Tory cuts.
My hon. Friend is right to raise the repair of schools, as there are 32,000 schools in the country, 16,000 of which will have been repaired or modernised as a result of the new deal for schools. The new deal for schools was made possible by the windfall tax on the privatised utilities, which was opposed tooth and nail by the Conservative party. However, it has yielded better schools for 15,000 communities in our country.

Mr. John Townend: Does the Chancellor accept that he would not have been able to come here today and announce these telephone number increases in expenditure if the Government had kept the pledge that the Prime Minister made before the election—that there would be no overall increase in taxation? The Chancellor is getting £25 billion over a five-year Parliament from pensions, and billions of pounds from petrol and extra tobacco tax. He has attacked married couples with more tax and has also attacked home owners. Does he accept that if, as he proposes, expenditure continues to rise at a faster rate than the growth in the economy, further tax increases are inevitable? Is not this Labour Government reverting to type, as they are taxing, spending and taxing again?

Mr. Brown: Our pledge was to keep the basic rate of tax the same, or to reduce it, which is what we did. We also pledged not to raise the top rate of tax and to cut to 5 per cent. the rate of Conservative-imposed VAT on fuel, which we did. Our pledges on taxation have been kept.
I know that the hon. Gentleman is a permanent tax cutter, and has been saying that in the House for as long as I have known him. He must be very sad that the Conservative party is now dropping its tax guarantee, or is trying to do so. The hon. Gentleman believed in the tax guarantee, but the problem is that the shadow Chancellor did not. The Conservative leader said that there would be a tax guarantee, with no ifs, no buts and no question marks, which the Conservatives would carry out. It was absolutely clear that the tax guarantee would be imposed, which the shadow Chancellor confirmed only a few weeks ago. The Conservatives tried to ditch that seven days ago, which is why nobody believes anything that they say about tax.

Ms Sally Keeble: I very much welcome the extra spending on child care, schools, higher education and health care. My right hon. Friend also mentioned the child care tax credit and the working families tax credit. Will he give some global figure of how much extra the Government are investing in public services through the tax credits to support hard-working families? As those families rely to a great extent for their security and stability on knowing the long-term plans, does he agree that people will also want to know in the run-up to the election whether the Conservative party is committed to such spending levels?

Mr. Brown: I agree with my hon. Friend. We are spending £7 billion extra a year on families. We are doing that by raising child benefit by 35 per cent., which I presume the Conservative party now wants to cut; by


introducing the working families tax credit, which is benefiting 1 million families, and which we now know the Conservative party wants to abolish; and by introducing the child care tax credit from next year, which I must presume from the Conservative party's silence it would abolish too. I also presume that the Conservative party will not want the extra investment that we are making in child care under the national child care strategy, which is welcome throughout the country.
We have just today set up a children's fund, in which we have linked charities, community groups, Churches and other organisations throughout the country to tackle and to help to solve the problems of children in need. That will be a £250 million fund which I believe charities will welcome and with which community groups will be happy to work. Again, I must presume that the Conservative party's new policy means that it would oppose even that.

Mr. Michael Fallon: Amidst all the hype and spin, will the Chancellor confirm one fact: at the end of his three completed years so far, the tax burden is higher than it was when he started? Secondly, if it is right to give every secondary school £70,000, why not give the schools all the money?

Mr. Brown: The Conservatives' proposals which were issued without great thought—like almost all their policies which have had to be rethought, including the tax guarantee—would fail to promote, for example, special needs. The £1 billion for special needs, and, indeed, school transport, were not even calculated for. After this week's episodes, the Conservative party will have to go back to the drawing board with their proposals in their entirety.
On the tax burden, I have already given the figures: 37.1 per cent., 37 per cent. and 36.9 per cent. and, by 2003–04, according to the published figures, 36.7 per cent. The shadow Chancellor has got yet another fact wrong today.

Mr. Nigel Beard: I congratulate my right hon. Friend on his statement, which is indeed a watershed in the history of public services in this country. Given the accumulation of problems over 18 years of neglect of health, education and our transport service, how does he intend to ensure that the money is spent to best effect?

Mr. Brown: I am grateful to my hon. Friend. He rightly says that the matter is not just one of increasing the amount of money. It must be increased, contrary to what the shadow Chancellor says, because there has been long-term underinvestment, which was a feature of 18 years of Conservative government. We must ensure that the money goes to front-line services. That is why, when the health and transport plans and what are called our public service agreements are published, there will be strict output targets, a new regime of penalties and incentives, greater inspection in many areas and a flow of information to the public, which is itself a discipline.
Therefore, we are taking steps to try to improve value for money and quality of service, which particularly people from the poorest areas have been denied for too long as a result of cuts in investment. We are determined to ensure such action. I welcome what my hon. Friend says. This is sustained investment in our country's future and it means that we can look forward, under a Labour Government, to improvement in the social and economic fabric.

Mr. Deputy Speaker: Order. We must move on; there will be further opportunities to return to these matters.

Point of Order

Mr. Bob Russell: On a point of order, Mr. Deputy Speaker. On 6 July, along with other right hon. and hon. Members, I tabled an oral question to the Chancellor of the Exchequer. I had the good fortune to be drawn at No. 1. Last night, 11 days later, I was advised that the question had been vetoed by the Chancellor. I have made inquiries today and his office has confirmed that. The question was identical to one that I tabled two years ago, which was answered on the Floor of the House by the Paymaster General. May I please have some guidance on the Chancellor's right personally to veto an oral question 11 days after it was tabled?

Mr. Deputy Speaker (Sir Alan Haselhurst): I am grateful to the hon. Gentleman for giving notice of his point of order. As "Erskine May" makes clear, it is a long-established principle that decisions on the transfer of questions rest with Ministers, not the Chair. However, the Speaker does expect Departments to act promptly in transferring questions. Successive Speakers have said that it is a discourtesy if transfers are not notified within two sitting days of the first appearance of the notice. In this case, the practice has been breached by a very wide margin. Decisions on which Minister should answer a particular question should be taken consistently, so that Members can have a reasonable expectation of what questions will be answered by which Department when they table oral questions.

Leasehold Reform

Shona McIsaac: I beg to move,
That leave be given to bring in a Bill to enhance and protect the rights of homeowners in purchasing the freehold of their house; and for connected purposes.
To put my case simply, I want to bring in a Bill to stop greedy landowners insisting that home owners—usually pensioners in my part of the country—pay them tens of thousands of pounds simply so that they can stay in their own homes. I wish to thank the chairman of the all-party group on leasehold reform, my hon. Friend the Member for Brent, North (Mr. Gardiner), the Campaign for the Abolition of Residential Leasehold and LEASE—the Leasehold Advisory Service—for their support on this issue.
Two million people live in leasehold properties; there are thousands in my constituency. That is a time bomb waiting to go off. Unless the Government wake up and do something urgently, thousands of pensioners could find themselves on the streets through no fault of their own. Councils will have to pick up the tab, while landowners and landlords will be laughing all the way to the bank.
Many homes built in the Victorian building boom in the 19th century were sold on 99-year leases. Those leases are now up for renewal, and people who have worked hard all their working lives to pay off their mortgages are being asked to fork out vast sums to buy the freehold of homes that they thought they already owned. Residents are being asked to pay up to £30,000 to purchase the freehold of those houses. In Grimsby and Cleethorpes, that is more than the value of the property.
Of course people who cannot afford to buy the freehold can extend their lease by 50 years, but, in doing so, they lose all their rights to buy the freehold and, in effect, become tenants. That is a scam by the landlords and landowners. It is a scandal that those who have contributed nothing for almost 100 years can waltz in and demand from home owners outrageous sums so that they can stay in their own homes. Those landlords and landowners never laid a brick or paid to build the houses. They never paid a penny towards their upkeep and improvement over the years. They never paid a household bill, insurance, the rates or the council tax. Yet they want tens of thousands of pounds from mainly elderly people—often widows—who simply cannot lay their hands on such sums. The law must be changed to stop leaseholders being fleeced by unscrupulous landowners.
Leasehold is a fundamentally flawed system of home ownership. It is a throwback to feudal times. Someone who wrote to me recently called his landlord a modern-day robber baron. The leasehold system enables the landowners to benefit from a rise in property values at no cost to themselves.
My right hon. Friend the Minister for Local Government and the Regions said:
leasehold tenure is totally unsuited to the society of the 20th—let alone 21st century—which still allows abuses to flourish and causes misery and frustration to many leaseholders.
I shall tell the House about some of the misery that I have come across in my constituency. One woman was quoted £20,000 to buy the freehold when there was still 30 years on the lease. Another pensioner is frantically trying to


raise money from relatives to meet a demand of £10,000 to buy her freehold, which is due to expire soon. She cannot get a bank loan for that sum because she is aged over 80.
Another frail widow wanted to sell her house so that she could go into residential care. Her lease is due to expire, and she too has been quoted £10,000 to buy the freehold. She had hoped for comfort and care in her remaining years, but is now fraught with worry about raising money that she simply does not have. Another family who could not get hold of the necessary money have resigned themselves to extending the lease for 50 years. Those people have become tenants, losing the right to buy their freehold. They no longer own their own home. In all the cases that I have given, the mortgages had been paid off. People thought that they owned their own homes.
We must reform the completely unrealistic conditions that apply when families inherit leasehold houses. To buy freehold, family members must have been resident in the house at the time when the deceased passed away, and they must have been resident for three of the past 10 years. Everything is stacked in favour of the landlords: few families can meet those conditions.
The Under-Secretary of State for the Environment, Transport and the Regions, my hon. Friend the Member for Sunderland, South (Mr. Mullin), wrote to me saying that people who inherit a lease will often be unable to qualify to buy freehold and might have to pay large sums for it. I can offer the example of a constituent who passed away in January, leaving his house, with the mortgage paid, to his family. The family discovered that the lease ran out at the beginning of April. The freeholder, a Mr. J. C. Mountain, refused at first to sell the freehold. When I put pressure on him, he agreed to do so, and wrote to me on 13 March—days before the lease expired—quoting a price of £35,000 if my constituents were to inherit their parents' home. They could not raise the money and have lost their parents' home. The freeholder is laughing all the way to the bank.
Owners of freeholds, such as Mr. Mountain and the estate of the Earl of Yarborough, must be delighted that the Government have been slow to introduce measures to stamp out their nice little earners. Landowners also fail to tell people about their rights—leasehold valuation tribunals, for example. Bully-boy tactics are being used to scare pensioners into coughing up the dosh.
Ultimately, the Government must keep their manifesto promise to abolish leasehold as a form of housing tenure. Today, however, I seek to protect the rights of homeowners through the abolition of marriage value as part of the calculation in determining the price of a freehold. We must get rid of the special valuation basis for calculating the price of a freehold, which, because of high prices, freeholders in Grimsby and Cleethorpes are using wrongly to determine prices. The special valuation basis, under which the landowner must receive 50 per cent. of the marriage value and compensation for any severance and losses while the leaseholder must meet his or her own costs and those of the landowner—is wrong.
My hon. Friend the Member for Great Grimsby (Mr. Mitchell)—who is not present—has told me that Grimsby grannies, many of whom are widows of trawlermen for whom he has fought for many years, are losing their homes while the Government dither.
I therefore introduce this Bill to enhance the rights of owners of leasehold houses by abolishing marriage value when considering the purchase price of the freehold, by extending the rights of family members to purchase the freehold of a house on inheriting it and by extending the right of homeowners to purchase a freehold if, at the end of a 99-year lease, they extend it.

Question put and agreed to.
Bill ordered to be brought in by Shona McIsaac, Mr. David Borrow, Mrs. Christine Butler, Mr. Ian Cawsey, Valerie Davey, Mr. Paul Flynn, Mr. Barry Gardiner, Mrs. Joan Humble, Mr. Jon Owen Jones, Mr. Austin Mitchell, Mr. Ian Stewart and Mrs. Betty Williams.

LEASEHOLD REFORM

Shona McIsaac accordingly presented a Bill to enhance and protect the rights of homeowners in purchasing the freehold of their house; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 21 July, and to be printed [Bill 163].

DELEGATED LEGISLATION

Mr. Deputy Speaker (Sir Alan Haselhurst): I propose to put together the Questions on the five motions.

Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

INSIDER DEALING

That the draft Insider Dealing (Securities and Regulated Markets) (Amendment) Order 2000, which was laid before this House on 22nd June, be approved.

TRADE UNION AND LABOUR RELATIONS

That the draft Code of Practice on Industrial Action Ballots and Notice to Employers, which was laid before this House on 26th June, be approved.

LOCAL GOVERNMENT FINANCE (SCOTLAND)

That the Local Government Finance (England) Special Grant Report (No. 64) on the Special Grant for Activities undertaken by Beacon Councils (House of Commons Paper No. 564), which was laid before this House on 27th June, be approved.

LEGAL AID AND ADVICE

That the draft Legal Aid (Functions) Order 2000, which was laid before this House on 27th June, be approved.

That the draft Legal Aid (Prescribed Panels) (Amendment) Order 2000, which was laid before this House on 27th June, be approved.—[Mr. Jamieson.]

Question agreed to.

FINANCE BILL [MONEY]

Queen's recommendation having been signified—

Resolved,
That for the purposes of any Act resulting from the Finance Bill, it is expedient to authorise the deduction of sums from the gross


revenues of the department of the Commissioners of Inland Revenue for the purpose of making payments in respect of stamp duty paid on instruments—
(a) executed in the period beginning with 22nd March 2000 and ending with the day on which the Finance Bill is passed, and
(b) stamped on or before the day on which the Bill is passed,
where stamp duty was chargeable in respect of the instrument and, had the instrument been executed after the day on which the Bill is passed, no stamp duty or less stamp duty would have been chargeable.—[Mr. Jamieson.]

FINANCE BILL [WAYS AND MEANS]

Resolved,
That provision may be made in the Finance Bill, amending section 97A of the Finance Act 1986 by the insertion, after subsection (12), of the following subsection—

(13) Nothing in section 70(9) or 97(1) above has effect to prevent a charge to stamp duty or stamp duty reserve tax arising—
(a) on a transfer to which subsection (5) above applies, or
(b) on a deemed transfer under subsection (11) above.".—[Mr. Jamieson.]

FINANCE BILL [WAYS AND MEANS]

Resolved,
That, notwithstanding anything in the Resolution of the House (Amendment of the Law) of 27th March 2000, provision may be made in the Finance Bill amending paragraph 5(4) of Schedule A1 to the Value Added Tax Act 1994 by the insertion, after paragraph (e), of the following paragraphs—
'(f) wind turbines;
(g) water turbines.'.—[Mr. Jamieson.]

Orders of the Day — Finance Bill

Not amended in the Committee and as amended in the Standing Committee, considered.

Ordered,

That the Finance Bill, as amended, be considered in the following order: New Clauses; Amendments relating to Clauses 1 to 6, Schedule 1, Clauses 7 to 17, Schedule 2, Clauses 18 to 22, Schedule 3, Clause 23, Schedule 4, Clause 24, Schedule 5, Clauses 25 to 30, Schedules 6 and 7, Clauses 31 to 47, Schedule 8, Clause 48, Schedule 9, Clauses 49 to 57, Schedule 10, Clauses 58 and 59, Schedule 11, Clause 60, Schedule 12, Clause 61, Schedule 13, Clause 62, Schedule 14, Clause 63, Schedules 15 and 16, Clause 64, Schedule 17, Clause 65, Schedule 18, Clauses 66 to 68, Schedule 19, Clause 69, Schedules 20 and 21, Clauses 70 to 82, Schedule 22, Clauses 83 to 87, Schedule 23, Clauses 88 to 91, Schedule 24, Clause 92, Schedules 25 and 26, Clauses 93 to 97, Schedule 27, Clause 98, Schedule 28, Clauses 99 to 102, Schedule 29, Clause 103, Schedule 30, Clause 104, Schedule 31, Clauses 105 to 116, Schedule 32, Clause 117, Schedule 33, Clauses 118 to 128, Schedule 34, Clauses 129 to 132, Schedule 35, Clause 133, Schedule 36, Clauses 134 to 139, Schedule 37, Clause 140, Schedule 38, Clauses 141 to 146, Schedule 39 and Clauses 147 to 151; New Schedules; Amendments relating to Clauses 152 and 153, Schedule 40 and Clause154.—[Miss Melanie Johnson.]

New Clause 3

STAMP DUTY: EXCEPTIONS FROM SECTION 119

'.—(1) Section 119 does not apply by virtue of paragraph (a) of subsection (1) of that section in any of the following cases (any reference in this section to A or B being taken as a reference to the person referred to as A or B, as the case may be, in that subsection).

(2) Case 1 is where B holds the estate or interest as nominee or bare trustee for A.

(3) Case 2 is where A is to hold the estate or interest as nominee or bare trustee for B.

(4) Case 3 is where B holds the estate or interest as nominee or bare trustee for some other person and A is to hold it as nominee or bare trustee for that other person.

(5) Case 4 is where (in a case not falling within subsection (2) or (4) above)—
(a)the transfer or vesting is a conveyance or transfer out of a settlement in or towards satisfaction of a beneficiary's interest;
(b) the beneficiary's interest is not an interest acquired for money or money's worth; and
(c) the conveyance or transfer is a distribution of property in accordance with the provisions of the settlement.

(6) Case 5 is where (in a case not falling within subsection (3) above) A—
(a) is a person carrying on a business which consists of or includes the management of trusts; and
(b) is to hold the estate or interest as trustee acting in the course of that business.

(7) Case 6 is where (in a case not falling within subsection (3) above) A is to hold the estate or interest as trustee and, apart from section 839(3) of the Taxes Act 1988 (trustees as connected persons), would not be connected with B.

(8) Case 7 is where—
(a) B is a company;
(b) the transfer or vesting is, or is part of, a distribution of assets (whether or not in connection with the winding up of the company); and
(c) the estate or interest was acquired by B by virtue of an instrument which is duly stamped.

(9) This section shall be construed as one with the Stamp Act 1891.

(10) This section applies to instruments executed after the day on which this Act is passed.'.—[Miss Melanie Johnson.]

Brought up, and read the First time.

The Economic Secretary to the Treasury (Miss Melanie Johnson): I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss the following: Government new clause 4—Stamp duty: relief for certain instruments executed before this Act has effect.
Government new clause 5—Stamp duty and stamp duty reserve tax: transfers between depositary receipt systems and clearance systems.
Government amendments Nos. 108 to 130.

Miss Johnson: New clauses 3, 4 and 5 and amendments Nos. 108 to 130 respond to a number of representations about the Finance Bill provisions relating to stamp duty. New clause 3 makes some exceptions to clause 119. New clause 4 applies these exceptions to documents executed between the Budget announcement and Royal Assent, and similarly backdates the relief in clause 129 for transfers of local authority housing stock to registered social landlords. New clause 5 makes an existing relief more comprehensive in response to developments in the financial markets.
The bulk of amendments Nos. 108 to 130 address a concern about the application of clauses 122 to 124. They align the definition of a stamp duty group with the definition of a group for the purposes of corporation tax group relief.
Clause 119 ensures that there is a stamp duty charge based on market value on land or buildings which are transferred to a connected company. In Committee, I mentioned that I would be tabling measures to exempt land settled on an independent corporate trustee from the scope of that clause.
New clause 3 ensures that trustees are exempted and also that transactions involving nominees and certain types of distribution of land in specie fall outside the scope of clause 119. New clause 4 provides for the effect of these exemptions to be backdated to 28 March, when clause 119 took effect.

Mr. John Burnett: Is that exemption on settlement where the settlement is for nil value?

Miss Johnson: Perhaps I could come back to that, because I am not sure what point the hon. Gentleman is raising.
New clause 4 also backdates the effect of the relief for transfers of local authority housing to registered social landlords. Clause 129 relieves these transfers from stamp duty with effect from Royal Assent. New clause 4 extends this relief to transfers after 21 March. This affects transfers under the large-scale voluntary transfer programme that has taken place since the date of the Budget announcement.
New clause 5 is a response to representations from the financial markets. It concerns transfers between depositary receipt systems and clearance systems. Its purpose is to make the stamp duty and the stamp duty reserve tax reliefs for transfers between these systems more comprehensive to cope with market developments. Transfers of United Kingdom shares within depositary receipt systems or clearance systems are free of duty, in return for the payment of a 1.5 per cent. charge when the shares first enter the system. That is usually described as a season ticket charge. There are reliefs which ensure that no stamp duty charge arises when shares are transferred from one season ticket system to another of the same type. The new clause extends the reliefs to include transfers from one type of season-ticket system to another.
Government amendments Nos. 108 to 125 deal with stamp duty group relief. The new clauses and amendments align the definition of "stamp duty group" with the definition of "group" for the purposes of corporation tax group relief. One of the effects of the new clause is that, when there are arrangements in place for a company to be sold out of the group, it ceases to be a group member. That provision blocks group relief for the transfer of assets between that company and the rest of the group, and it is needed to prevent assets from being transferred into the company leaving the group.
I have received representations expressing concern about the blocking of relief for transfers from the company about to leave the group to another group member—in other words, when the company leaving the group is the transferor. I am persuaded that there are commercial situations in which an asset is transferred to another group company after arrangements are in place for the transferor company to leave the group; in a sense, therefore, the asset never leaves the original group. I am willing to make a concession for such cases, which will be useful to businesses, as their legal advisers have suggested.
I have some worry that it might be possible to construct avoidance devices from the concession, so I have asked the Stamp Office to monitor carefully the use of the relief. If the concession is abused, the Government will not hesitate to act swiftly.
As I said, the new clauses and amendments have been tabled in response to representations about the effect and timing of the measures in the Bill. They meet a range of reasonable concerns expressed to us on these matters—some of them by Conservative Members in Standing Committee.
I commend the new clauses and amendments to the House.

Mr. Howard Flight: The Government amendments are welcome, as they deal with situations where no transfer of beneficial ownership takes

place. A major aspect of some of the exemptions is that they will not get in the way of company reorganisations, but that will apply only when the transfer takes place entirely within the group. Company reorganisations involving joint ventures, for example, will attract full stamp duty at a likely rate of 4 per cent.
Not long ago, I recall the Chancellor standing at the Dispatch Box and referring to the McKinsey report. He spoke about a difficulty in improving productivity that stemmed from the existing legislation in respect of property and planning. The report referred specifically to problems and delays in obtaining planning consents, and to the costs of property transactions. Those costs have now been increased still further, and there is an element of hypocrisy in that.
I put it to the Government that, if the aim is for greater productivity and greater flexibility of property use in business, the amendments could go a lot further. The proposals amount to a major stealth tax on business.
In essence, the later amendments deal with securities that move between depositary receipt systems and that contain exemptions as a result. That is the territory of the business of the City of London. I should declare an interest in that respect, as should all hon. Members who are members of the House of Commons pension scheme.
I have a question for the Economic Secretary. At a public meeting two years ago, I asked Lord Simon, who was then Minister for Trade and Competitiveness in Europe, whether the Government were aware of the business that was being lost to Frankfurt as a result of the stamp duty that applies on securities in this country, and whether the Government intended to do anything about it. He responded that the Government were well aware of the issue and intended to address it.
It is ironic that I am asking this question on the very day on which the Government have announced a massive and cynical splurge to buy votes ahead of an election. It is an age-old game to tighten taxation in the first three years in power and then splurge a year or so before an election. That tactic is as old as the hills.
However, given the strength of the revenues, if there were any desire to protect them, the near future would be the time to address this issue. Unless stamp duty on securities is phased out, there will be a massive loss and haemorrhaging of business in security transactions away from the United Kingdom and to the other centres in Europe, especially Frankfurt, where no stamp duty applies. When will the Government honour the pledge that the previous Minister for Trade and Competitiveness in Europe gave on this issue? Have they considered the potential total loss of revenue if that issue is not addressed?

Mr. Burnett: It might help the Economic Secretary if I mention that my earlier intervention related to exemptions on transfer into settlement. Let us make the question absolutely clear: is that exemption available only when there is no consideration and no passing of beneficial ownership?
The Finance Act 1998 contained many anti-avoidance provisions for stamp duty and for stamp duty reserve tax. At that time, the Government trumpeted the effect of the anti-avoidance measures. Unfortunately, they were not very successful under that Act, and because transactions were channelled through American depositary receipts, significant amounts of revenue were lost to the Exchequer.
I understand that in three major transactions—involving, I believe, BP Amoco, Vodafone and one other—some £1.5 billion was lost to the Treasury. To what extent does the Inland Revenue believe stamp duty and stamp duty reserve tax are being avoided, especially in international transactions? The Economic Secretary has told the House that the Stamp Office is monitoring transactions for avoidance. What has been the cost to the Government of avoidance of stamp duty since March 1998?

Miss Melanie Johnson: I am interested by some of the remarks that Opposition Members have made, which do not entirely relate to the amendments. However, I shall do my best to answer them. In his earlier intervention, the hon. Member for Torridge and West Devon (Mr. Burnett) asked the question that he has now reiterated, which was whether the exemption to clause 119 is available when there is a nil consideration. The answer is yes, the exemption takes the transaction out of the scope of clause 119, whatever the consideration, including a nil consideration.

Mr. Burnett: Does that mean that there is no change in the beneficial ownership, or can the exemption apply if there is no consideration but there is a change in the beneficial ownership?

Miss Johnson: I shall await some further thoughts on that matter.
The hon. Member for Arundel and South Downs (Mr. Flight) said that many opportunities for joint ventures will not be helped by the group relief. The relief will apply where a joint venture falls within the scope of the group relief provisions. The new clauses have not changed the rules for joint ventures.
The new clauses and amendments are all about anti-avoidance measures and making those measures work properly, ensuring that they are effective but not too tight. None of the existing arrangements is changed, although it is always tempting for hon. Members to think otherwise.

Mr. Flight: The key point is that the cost of the tax to business is enormously higher than it was three years ago. The rules may not have changed, but they are a far more powerful deterrent to corporate modernisation than they were.

Miss Johnson: The only change in the Budget was to increase the upper limit to 4 per cent., and that has affected only those making transactions involving more than £500,000. That is a sizeable sum, so we are talking about large deals and not smaller businesses or individuals, unless they are quite wealthy. The Budget leaves 95 per cent. of stamp duty effects completely unchanged. I understand that the proportion of stamp duty revenue from shares and from property transactions has remained more or less constant.
The hon. Member for Arundel and South Downs spoke about the changes in stamp duty reserve tax and the arrangements for depositaries to ensure that we reflect changes that we understand are likely to take place in the business environment. This has not been an issue for business to date. We are enabling a flexibility in the system which has not hitherto existed but which we believe will be necessary in the future.
The hon. Gentleman asked about the future of stamp duty reserve tax in general, which is not directly relevant to the new clauses and amendments. We consider these matters every year in the Budget. We have not identified any need for action this year, so it was not a feature of the Budget or the Bill, but we always keep these matters under review.
On the hon. Gentleman's little splurge of an attack on so-called splurge, let me remind him that it is the Government's prudence in managing the economy and public expenditure that has enabled us to announce today some very generous investment in public services. Instead of spending 42p in the pound of extra money on social security and debt repayment, as the previous Government did, we have brought the figure down to only 17p. I caution the hon. Gentleman not to return to the earlier discussion, because we would be delighted to have a further debate on those subjects.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 4

STAMP DUTY: RELIEF FOR CERTAIN INSTRUMENTS EXECUTED BEFORE THIS ACT HAS EFFECT

'.—(1) This section applies to an instrument of any of the following descriptions executed in the period beginning with 22nd March 2000 and ending with the day on which this Act is passed—

(a) an instrument transferring or vesting an estate or interest in land in such circumstances as are mentioned in section 119 (transfer of land to connected company), in a case specified in section (Stamp duty: exceptions from section 119) (excepted cases);
(b) a conveyance or transfer of an estate or interest in land, or a lease of land, to a qualifying landlord within the meaning of section 129 (transfers to registered social landlords, etc.) from a qualifying transferor within subsection (6)(c), (d), (e), (f) or (h) of that section.

(2) If the instrument is not stamped until after the day on which this Act is passed, the law in force at the time of its execution shall be deemed for stamp duty purposes to be that which would have applied if it had been executed after that day.

(3) If the Commissioners are satisfied that—

(a) the instrument was stamped on or before the day on which this Act is passed,
(b) stamp duty was chargeable in respect of it, and
(c) had it been stamped after that day no stamp duty, or less stamp duty, would have been chargeable,
they shall pay to such person as they consider appropriate an amount equal to the duty (and any interest or penalty) that would not have been payable if the law in force at the time of execution of the instrument had been that which would have applied had it been executed after that day.

(4) Any such payment must be claimed before 1st April 2001.

(5) Entitlement to a payment is subject to compliance with such conditions as the Commissioners may determine with respect to the production of the instrument, to its being stamped so as to indicate that it has been produced under this section or to other matters.

(6) For the purposes of section 10 of the Exchequer and Audit Departments Act 1866 (Commissioners to deduct repayments from gross revenues) any amount paid under this section shall be treated as a repayment.

(7) This section shall be construed as one with the Stamp Act 1891.'.—[Mr. Jamieson.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 5

STAMP DUTY AND STAMP DUTY RESERVE TAX: TRANSFERS BETWEEN DEPOSITARY RECEIPT SYSTEMS AND CLEARANCE SYSTEMS

'.—(1) In Part III of the Finance Act 1986 (stamp duty), after section 72 insert—

"Transfers between depositary receipt system and clearance
system

72A.—(1) Where an instrument transfers relevant securities of a company incorporated in the United Kingdom between a depositary receipt system and a clearance system—

(a) the provisions of section 67(2) to (5) or, as the case may be, section 70(2) to (5) above shall not apply, and
(b) the stamp duty chargeable on the instrument is £5.

(2) A transfer between a depositary receipt system and a clearance system means a transfer—

(a) from (or to) a company that at the time of the transfer falls within section 67(6) above, and
(b) to (or from) a company that at that time falls within section 70(6) above.

(3) This section does not apply to a transfer from a clearance system (that is, from such a company as is mentioned in subsection (2)(b) above) if at the time of the transfer an election is in force under section 97A below in relation to the clearance services for the purposes of which the securities are held immediately before the transfer.".

(2) In Part IV of the Finance Act 1986 (stamp duty reserve tax), after section 97A insert—

"Transfer between depositary receipt system and clearance
system

97B.—(1) There shall be no charge to tax under section 93 or 96 above where securities are transferred between a depositary receipt system and a clearance system.

(2) A transfer between a depositary receipt system and a clearance system means a transfer—

(a) from (or to) a company which at the time of the transfer falls within section 67(6) above, and
(b) to (or from) a company which at that time falls within section 70(6) above.

(3) This section does not apply to a transfer from a clearance system (that is, from such a company as is mentioned in subsection (2)(b) above) if at the time of the transfer an election is in force under section 97A above in relation to the clearance services for the purposes of which the securities are held immediately before the transfer.".

(3) In sections 67(9), 70(9), 95(1) and 97(1) of the Finance Act 1986 (transfers between depositary receipt systems or between clearance systems), the words "and is resident in the United Kingdom" and "and is so resident" shall cease to have effect.

(4) In section 97A of that Act (clearance services: election for alternative system of charge), after subsection (12) add—
(13) Nothing in section 70(9) or 97(1) above has effect to prevent a charge to stamp duty or stamp duty reserve tax arising—

(a) on a transfer to which subsection (5) above applies, or
(b) on a deemed transfer under subsection (11) above.".

(5) The amendments in this section have effect as follows—

(a) subsection (1), and subsections (3) and (4) as they apply for stamp duty purposes, apply in relation to instruments executed after the day on which this Act is passed;
(b) subsection (2), and subsections (3) and (4) as they apply for the purposes of stamp duty reserve tax, apply where the securities are transferred after that day.'.—[Mr. Jamieson.]

Brought up, read the First and Second time, and added to the Bill.

New Clause 1

CORPORATION TAX ON CERTAIN INSURANCE COMPANY PROFITS

'(1) Section 88A of the Finance Act 1989 (lower corporation tax rate on certain insurance company profits) is amended as follows.

(2) In subsection (1) for the words "lower rate income", substitute "lower rate income or gains".

(3) In subsection (3) for the words from the beginning to "following descriptions", substitute—
(3) In this section, references to a company's lower rate income or gains for any accounting period are references to all of the chargeable gains of its basic life assurance and general annuity business for the period, and to so much of the income of that business for the period as consists in income of any of the following descriptions—".

(4) In subsections (4), (5) and (6), for the words "lower rate income", in each place where they occur, substitute "lower rate income or gains".

(5) This section has effect for the financial year 2000 and subsequent years.'.—[Mr. Jack.]

Brought up, and read the First time.

Mr. Michael Jack: I beg to move, That the clause be read a Second time.
New clause 1 would make a small—some may even say technical—change to the method of taxing life assurance policies. That small change, however, represents an attempt to bring the way in which the taxation of such policies deals with capital gains tax, in terms of taxation within the policy, into line with the change in the impact of CGT on those with assets whose value increases outside life assurance policies.
I was grateful to the Financial Secretary for writing me a courteous and helpful letter on 1 June, following my first foray into this area. When I raised the subject in general terms when clause 37 was debated in Committee, he agreed to consider my arguments, and wrote me that helpful letter. I was heartened by the beginning of the final paragraph, in which he wrote:
I accept that the case for change is not totally without merit.
I think I scored seven out of 10. The purpose of this debate is to establish whether we can bring that score nearer, or perhaps all the way, to reality.
When preparing for today's debate—and, indeed, for the debate in Committee—I first wanted to identify the cost implications of my proposal. I therefore tabled a


series of parliamentary questions to try to elicit some facts from the Treasury. I think it worth noting how the Treasury responded to a perfectly legitimate request for information.
The taxation formula known as I minus E relates to life assurance policies, and my proposed change relates to that formula. I wanted to know how much it would cost. When I asked the cost of a 1 per cent. change in each rate of tax in the so-called composite that constitutes the life assurance tax rate, the Treasury told me that no estimates were available. When I asked what the tax yield from life assurance policies had been over the past eight financial years, in the context of the I minus E formula, I was told that the information was not available.
I then tried a different tack in an attempt to elicit the truth. I asked for the individual rates that made up the composite taxation rate of life assurance returns each year. I managed to obtain that information from the Treasury, which pointed out that there was an inconsistency between the personal rate of capital gains tax and that used in terms of the I minus E formula.
I have dwelt on those parliamentary answers for a reason. It is remarkable that, when the Financial Secretary finally got around to responding to my points on clause 37, he managed to find out how much my proposal would cost. Let me send this message to the Treasury: when Opposition Back Benchers ask legitimate questions to which they, the public and the insurance industry should be able to obtain answers, they should not have to go through the expensive process of tabling numerous parliamentary questions and being told that the information requested is not available, only to find that—magically—it is available when the Financial Secretary writes a letter.
Some 25 million people, including me, have life assurance policies, which, for them, represent an important part of saving. Many, however, have seen the returns on their policies suffer as a result of changed economic circumstances. The new clause would enable the money saved through the change in capital gains tax—about which I shall say more in a moment—to go back into those policies and, in a modest way, to help increase returns on them, thus counterbalancing some of the market tendencies that have disadvantaged their holders.
The proposal would have the advantage of not discriminating against the life assurance policy as a form of saving. As I have said, changes have been made under section 26 of the Finance Act 1999, which reduced the rate of capital gains tax paid by basic rate taxpayers to 20 per cent. People with assets outside a life assurance policy get that lower rate. Under the present arrangements, those with life assurance policies do not have that advantageous change in the capital gains tax regime incorporated in the composite rate of tax attached to the earnings of life assurance policies.
Originally, when the Financial Secretary wrote to me costing out the proposal, he said that, in his estimate, the proposal would cost £30 million, but the Association of British Insurers observes that the basic rate of tax that has been proposed has dropped to 22 per cent. I should be grateful if the Economic Secretary confirmed that that change in the basic rate of tax reduces the cost of my proposal to £20 million or thereabouts. It is important that there be equitable treatment of capital gains tax within life

assurance policies to bring them into line with the way in which capital gains apply outside life assurance policies. That is the purpose of the new clause.
People value the life assurance policy because, effectively, the tax for which they would be liable had they made that investment in some other way is paid for them as the policy appreciates over time. If it is a qualifying policy—that is, one with regular payments lasting 10 years or longer—the situation of effectively receiving the money tax paid applies to both the basic rate and higher rate taxpayer. Therefore, it is a particularly, if you like, tax administrative-friendly form of saving, but I do not see why at this juncture the Government should not agree to make the small change that I propose: to bring into line the external capital gains treatment with the internal capital gains tax treatment in terms of life assurance policies.
The Association of British Insurers, which was most helpful to me in analysing the situation, rightly drew my attention to the fact that, if the change were to come in instantaneously, there might be a problem because the gains within a policy build over time. It may be that the new clause has a technical deficiency that does not necessarily reflect that particular situation. I would take advice from the Economic Secretary on that, but it is the principle that is at stake. If they do not accept my proposal now, the Government should commit themselves to firm action to regularise the position with regard to capital gains tax.

Mr. Flight: I support the new clause. The taxation of insurance companies is one of the mysteries of our culture. The number of people who understand it can perhaps be counted on the fingers of one hand. Time was when it was tax advantageous to save through insurance companies, which was unfair against other forms of saving. That was sorted out about 15 years ago. There is a powerful logic to the point of principle that my right hon. Friend the Member for Fylde (Mr. Jack) makes, which is that, given the changes that the Government have made to the capital gains tax regime, there should be a level playing field between saving within an insurance wrapper and without an insurance wrapper.
The Government have commissioned the Myners report to look into institutional investment in venture capital and to identify why it is not greater. As the Minister will no doubt be aware, one of the main things that it has found is that there is a need for reform of the tax of insurance companies, which do not have the lower capital gains tax incentives on venture capital that are available outside. I believe, therefore, that the rather broad drafting of my right hon. Friend's new clause would address that issue, which the Government's own commission is asking to be addressed.

Miss Melanie Johnson: I am not aware that the Myners review has reported yet. The hon. Gentleman must be getting his intelligence on that from his tea leaves.
New clause 1 would reduce the rate of tax that life assurance companies and friendly societies pay on capital gains that will contribute to benefits payable to policyholders. As the right hon. Member for Fylde (Mr. Jack) said, the logic behind the new clause is to


bring the rate of corporation tax on those gains into line with the rate of tax applied to the capital gains of individuals. There are already rules to ensure that the share of a life company's income needed to fund policyholder benefits is charged to tax at rates equal to the basic rate or the lower rate of income tax, whichever would apply if the income belonged to an individual policyholder.
Before April 1999, the rate of corporation tax on a life company's policyholder gains and the rate applicable to an individual's capital gains did correspond. However, as the right hon. Gentleman said, under the Finance Act 1999 the rate applicable to individual gains was reduced from the basic to the lower rate of tax without a corresponding change in the rate applicable to a life company's gains.
I can confirm that, because of cuts in the tax rates, the cost of the right hon. Gentleman's proposal would be £20 million annually. Therefore, at first sight, his proposal seems logical. However, a more detailed analysis shows that the logic applies only at a relatively superficial level. There are fundamental differences between the regimes for taxing gains made by companies, especially life companies, and the capital gains of individuals. When citing the formula I minus E, the right hon. Gentleman should really have said I plus G—for gains—minus E. That is the right formula.
The right hon. Gentleman raised the same issue in the Committee's debate on clause 37. As he said, my hon. Friend the Financial Secretary wrote to him. In that letter, my hon. Friend set out some of the key differences between the way in which a company's gains are taxed and the way in which an individual's gains are taxed. For the benefit of the House, I shall outline those differences, as they are entirely relevant to whether parity could be achieved as the right hon. Gentleman suggests in new clause 1.
Individuals enjoy taper relief, whereas companies have indexation. Another difference is that individuals have an annual exempt amount below which gains are not taxed. Additionally, life companies can deduct management expenses in computing their liability on chargeable gains, whereas individuals cannot. Life companies are also able to fund payments to policyholders from incoming premiums without realising assets and, therefore, making capital gains. That enables the companies to defer making taxable gains almost indefinitely, and so reduces the effective rate of tax that they pay on the policyholder gains. Those differences mean that a simplistic comparison, or a relatively simplistic comparison, of nominal rates of tax is not a very satisfactory way of comparing effective rates of tax on the gains of life companies and individuals.
Another point is that policyholders who pay higher rate tax on their policy gains get a credit for the basic rate tax. It would be appropriate to reduce that credit if the rate of tax on life company gains were reduced. However, new clause 1 would not do that. Therefore, it would not achieve quite the effect described by the right hon. Gentleman.
I grant the right hon. Gentleman that there are arguments both ways. If the changes that he seeks were to be made, it would have to be as part of a larger package than he is proposing. Although I am not persuaded that

such a package would necessarily be right, we shall continue to bear in mind the possibility for future Finance Bills. What is clear is that new clause 1 does not present such a package. Therefore, should the hon. Gentleman press the new clause today, I shall urge the House to reject it. Nevertheless, I concede that, in his proposal, he has achieved seven of 10.

Mr. Jack: It was most generous of the Economic Secretary to agree with my own self-marking. I drew some comfort from her last few words, having tried to grapple with the complexities of life assurance taxation—not always with great success, although I got a general idea of what it was about. If the hon. Lady was indicating that there may be a possibility of further dialogue with the life assurance industry when she said that my proposal would have to be wrapped around by other measures as part of a wider package, is she willing to commit the Treasury and the Revenue to further dialogue with the life assurance industry on this and other points? The industry and I would certainly draw comfort from the fact that the door was not closed on this seven-out-of-10 proposal.
Understandably, the hon. Lady drew attention to the taxation regime for life assurance companies and pointed out that certain tax advantages to companies negated the need for my proposal, but, tellingly, she did not mention that the treatment of capital gains within life assurance policies includes no equivalent to the personal allowance on capital gains. In other words, in respect of the composite rate for capital gains, the clock starts ticking from the first £1, whereas if the same asset were held outside the policy there would be an individual allowance before the capital gains clock started ticking. It is the view of the industry—certainly from my consultation—that that would counterbalance some of the hon. Lady's arguments in respect of the position of a company as opposed to that of an individual.
It comes down to equity. If we make a change to benefit the individual outside the policy in respect of capital gains tax, is it equitable not to benefit the individual who holds their savings in the form of a policy? I am very conscious that on the wider front the savings ratio in the United Kingdom has fallen and that people with life assurance policies have faced particular difficulties. Many events in terms of an individual's future financial outgoings are predicated on good returns being achieved, and the new clause is a small and modest proposal that would help to improve the returns on life policies at a difficult time for that particular savings product. I would very much appreciate a response from the Economic Secretary on that point.

Mr. Burnett: Is the right hon. Gentleman seeking to ensure that only one exemption is available per annum per individual, so that if the exemption is used outside the life policy no further exemption is available within it?

Mr. Jack: Very few individuals actually pay capital gains tax—I think that there are only a couple of hundred thousand. Putting that to one side, my proposal would deal on a continuing basis with a small change in the composite rate in respect of the way in which the formula to which the Economic Secretary referred—I plus G minus E—operates. That is the purpose of the new clause. It would become intolerably complex to try to relate an


individual's capital gains tax position in respect of assets held outside the policy to those within it. That is certainly not part of my proposal.
I conclude by asking the Economic Secretary to be kind enough to respond to my point about the proposal being part of a package and the possibility of opening dialogue with the industry so that, if necessary, the subject may continue to be discussed in the round.

Miss Melanie Johnson: First, let me return to a point that I should have answered earlier, which was mentioned by the right hon. Member for Fylde (Mr. Jack) in his opening remarks. He referred to the answers he received to parliamentary questions. He formulated questions requiring breakdowns of figures that were not available; he did not ask the question that my hon. Friend the Financial Secretary then answered. My hon. Friend explained the costs of reducing the rate of corporation tax on policyholders' chargeable gains from 23 to 22 per cent., but the right hon. Gentleman had not asked that question. Therefore, the mystery that he attached to the fact that the answer was available is not a mystery at all.
Also, in response to the right hon. Gentleman's argument about the exempt amount for life companies, I have already said that there is no exempt amount, but there are several factors pointing the other way. I have gone through the list and I am prepared to go through it again. It is a matter of balance.
The right hon. Gentleman referred to equity. I think that he did not use the right word in this context and that his argument was more about parity. There are a number of factors which cut both ways. As I hope I have explained, the matter is more complicated than the issue that he is raising in new clause 1.
I am not making a specific commitment to dialogue at this point; however, we will keep the matter in mind. Obviously, there will be future Budget rounds and discussions. As I am sure the right hon. Gentleman is aware, I regularly meet representatives of the insurance industry and the Association of British Insurers. I am sure that there will be opportunities for discussion, but I am making no commitment to introduce any future package. As I said, such a package would probably be the right way to achieve the right hon. Gentleman's objective, and I accept that there may be some arguments in favour of that objective. I hope that I have persuaded him to withdraw the new clause.

Mr. Jack: I accept what the Economic Secretary said about the word "parity" as that would achieve the same purpose. She has set a challenge to the insurance industry to use the opportunities of discussion with the Treasury and the Revenue to develop a package in which my proposal might find a place. However, I would not expect her to commit herself at this stage.
As for my parliamentary questions, I think that those who draft the answers to questions were pretty clued up as to why I was asking them, so it was disappointing that rather than the negative answers that I received there was not a little more imaginative drafting. However, given the assurances about future dialogue and the fact that no doubt the industry will want to rise to the challenge, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn

New Clause 2

RATES OF DUTY, ETC.: REFERENCE TO RETAIL PRICE INDEX

'In setting rates of duty, taxes, tax allowances, or tax credits by reference to a change in the Retail Price Index, there shall be used the actual change in the 12 months to the month preceding the announcement of the change.'—[Mr. Heathcoat-Amory.]

Brought up, and read the First time.

Mr. David Heathcoat-Amory: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to discuss new clause 7—Timing of announcement of pensioner income tax allowances—
'In section 257C(3) Taxes Act 1988 add at the end "The order shall be made by 31st December following the preceding September referred to in subsection (1).".'.

Mr. Heathcoat-Amory: An important part of the budgetary process is the uprating of tax rates and associated matters and, at other times of the year, the uprating of benefits and pensions. New clause 2 seeks to bring some honesty and transparency into the process and into Government finances more generally. It would require the Government to do what the previous Government did, and base the uprating of taxes, allowances and tax credits, and, by implication, benefits and pensions, on a single backward-looking or historical basis—in other words, to treat all upratings in the same way. Not only is that right in principle but it gives additional certainty and precision, because people can see that the increased rates are based on an arithmetical index that is generally published and available.

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The Financial Secretary to the Treasury (Mr. Stephen Timms): The right hon. Gentleman suggests that the Government should follow the practices of the previous Government. On a number of occasions, the previous Government froze the allowances altogether. Will he acknowledge that when he advocates that we follow their practices?

Mr. Heathcoat-Amory: Not only did we freeze some of the upratings but we reduced certain duties. In our last two Budgets, we froze the duty on alcohol and reduced it on spirits. We did that for sound reasons, and it is regrettable that the incoming Labour Government failed to follow that practice and uprated alcohol duties again. Now we hear that a main cause of disorder in all our streets is abuse of alcohol, some of it bought from illegal outlets and undoubtedly smuggled across the channel. The Government should have tackled the cause of that crime rather than trying to tackle its symptoms; they should have tackled the severe smuggling problem. So the answer to the Minister is that on occasions we froze some tax increases. I commend the practice to him.
The new clause ensures that where the Government increase taxes and benefits by reference to a prices index, they use a single historical one. I contrast that with what the Government are doing now. They pick and choose whether they use an historical or a projected index, purely for their own convenience. The most obvious example is the treatment of fuel duties. The basis of that treatment was changed in 1997 from an historical to a projected


inflation assumption. That was a clear break with what had happened previously, probably caused by the fact that the Government sought to introduce an extra uprating. The Government introduced four upratings in three years before they finally came off the fuel duty escalator.

Mr. John Bercow: Given that 29.5 per cent. of the price of a pint of beer, 50.5 per cent. of the price of a bottle of wine and 61.3 per cent. of the price of a bottle of whisky goes directly to Treasury coffers, can my right hon. Friend offer the House a guesstimate of how much lower those proportions would be in the happy event that new clause 2 had been passed at the beginning of this Parliament?

Mr. Heathcoat-Amory: My hon. Friend makes a good point, and most usefully broadens the debate. We are not discussing the increase in road fuel duty alone. As he has rightly spotted, the same system has been used to uprate tobacco and alcohol taxes in the Budget by far more than was justified. The figures are revealing. Fuel and alcohol duties increased by 3.4 per cent. immediately on Budget day. That was the anticipated inflation rate for the rest of the year. Curiously, that inflation rate does not appear anywhere in the Red Book, but that was undoubtedly the Government's estimate. By contrast, income tax allowances and tax credits, such as the tax credit for the disabled, all increased not by 3.4 per cent. but by between 1 and 1.5 per cent. That is all laid out on pages 138 and 139 of the Red Book.
So the Government took a high inflation figure when it suited them for revenue purposes, but when they gave away some money to working families or disabled people, or simply uprated personal allowances, they used a far lower figure. The net benefit to the Treasury was simply colossal. The Government notoriously used exactly the same methodology to uprate pensions by only 1.1 per cent., leading to the 75p per week insult to pensioners with which the country is so familiar.
Needless to say, there was not a word about the change in treatment of fuel duties in the Budget speech. The increases were all described as simply increases by the rate of inflation. Worse than that, when challenged, the Government denied it. I am glad that the Paymaster General is attending the debate. She will recall that this very issue was raised by my hon. Friend the Member for Arundel and South Downs (Mr. Flight), who is in his place now. On 6 April, he challenged her and pointed out that petrol duty had been raised by an inflation index of 3.4 per cent., whereas allowances had been raised by only 1.2 per cent.
The Paymaster General replied with a mixture of patronising my hon. Friend and being wrong. She said:
I think that I am right in saying that the hon. Gentleman has never been in government, so I suppose he can be forgiven for not knowing how the tax system works.
That was the patronising bit. The false and wrong statement was as follows:
The methodology used for this year's increase is exactly the same as that which has been used in previous years. It is the same methodology that the Conservative Government used.—[Official Report,6 April 2000; Vol. 347, c. 1145.]

That was flatly untrue. I have already described how in 1997 the incoming Labour Government changed the methodology from one based on an historical index to one based on a projected index. I should be grateful if the Minister would apologise for misleading the House.
Such examples show why people have lost faith in the Government and why the Government's assertions about taxes and benefits are simply not believed any more. Indeed, the contents of the memo leaked from No. 10, in which the Prime Minister whinges that no one believes him any more and he has lost touch with the instincts of the British people, are at least in part attributable to the fact that people have not been told the truth. When challenged, the Government flatly deny what is in fact the case. The practice of using two indexation procedures, simply for their convenience, has grown under this Government. I believe that that is not just wrong but probably illegal.
Some of us served on the 1998 Finance Bill. I have done more Finance Bills than I care to remember, and I certainly attended all the debates on that one. Under what became section 155 of the Act, the Treasury is committed by law to certain key principles in the formulation and implementation of fiscal policy. One of those key principles is transparency. I do not know what happens if the Government break one of their own laws—who gets arrested, or who is responsible for ensuring that an Act of Parliament is obeyed. That we can leave for another time, but the Government are building up a good deal of case law of instances in which they are in breach of section 155 of the Finance Act 1998.
The example of indexation subterfuges that are carried out and then denied comes in addition to other stealth taxes, and the House is familiar with many of them. The Select Committee on the Treasury, with its distinguished Labour Chairman and a Labour majority, drew attention in its report on the Budget this year to no fewer than five examples of a lack of transparency in the presentation of the national accounts. It pointed out that the Government used the term "tax burden" without making it clear that they were only talking about the direct tax burden. That conveniently omitted all the indirect taxes, which were increasing. The Select Committee asked that that be put right.
The Committee also drew attention to the rather propagandist little document that the Government published at Budget time, again at taxpayers' expense. It asked that in future such a document should be independently audited.

Mr. Bercow: Will my right hon. Friend confirm that the Select Committee's request was not spectacularly radical? It was merely asking the Chancellor to revert to the proper practice that was operated by Conservative Governments for 15 successive years, from 1981 to 1996.

Mr. Heathcoat-Amory: My hon. Friend is right. We are not asking for the impossible or the unusual. We are merely asking the Government to revert to previous practice.
I can give my hon. Friend another example. The Select Committee pointed out that the Government had dropped the previous practice of reporting on the effects of indirect taxes on households of various sorts. That was the subject of one of its recommendations. We all remember that in


previous years that information was routinely published by Conservative Governments. However, it was dropped immediately and without explanation, because the results would be embarrassing. That is wrong, and conflicts with the Finance Act 1998.
My final example is the working families tax credit, which is now being treated as a deduction from taxation, although it is part of the sum of social security expenditure. That fact is confirmed half way down page 220 of the Red Book, admittedly in small print:
income tax credits … score as public expenditure under national accounting conventions.
Despite that, in every other reference to working families tax credit in all other documents, and elsewhere in the Red Book, it is wrongly, confusingly—and, in my view, deceitfully—described as a deduction from income tax.
I have provided some examples, and the new clause is designed to prevent the situation from becoming worse. It would require the Government, by law, to have one policy for uprating the various taxes and duties, and to stick with it. This is not simply a question of honesty in the presentation of the national accounts, important though that is. It is also about protecting the country from further damage. If the clause had been implemented last year, the Government could not have raised fuel duties or other indirect duties by 3.4 per cent. I will not say that they got away with it, because what they had done was discovered, but the 3.4 per cent. increase has made petrol and diesel in the UK the most expensive in Europe.
If by some lucky chance the new clause is accepted this evening, the Government could find a way of paying back at least the windfall element in the money that they have netted since the Budget. Revenue from road fuel comes from hydrocarbon duty and value added tax. The Government's latest excuse for the rise in petrol prices is that the world price of oil has risen. However, that, too, nets the Government a great deal of extra revenue. It is calculated that VAT on the higher oil price since Budget day is netting the Government an extra £150 million a year.
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That is bad for taxpayers, particularly for those who have to have cars. It is also bad for the haulage industry and for manufacturing. However, it is good for some. We are told that it is very good for the racketeers and paramilitary organisations in Northern Ireland. I have often asked the Treasury whether it has any estimates of the smuggling that takes place across the land border between Northern Ireland and the Republic—another EU member state. It always replies that it has no such estimates. That shows an extraordinary degree of complacency.
Some other people have been doing some work. The Petrol Retailers Association has noticed that official deliveries of petrol in Northern Ireland have fallen from more than 160,000 tonnes in the last quarter of last year to less than 110,000 in the first quarter of this year. More than that, it has counted that more than 70 petrol stations in Northern Ireland have closed as a result of the smuggling. It believes that this is providing funds for racketeering and paramilitaries of various sorts.
It is extremely disturbing that that should have been worked out by an outside organisation and not by the Government. I ask the Government and the Treasury, in

all sincerity, to consider again the damage caused by the escalation in petrol prices. The Chancellor said this afternoon that he had come off the fuel duty escalator, but I have described a situation where he has done anything but that. There is no justification for the past increases and the extra budget that he has had in the past three years, which means that the cumulative effect will be even more damaging. In addition, he increased duty by 3.4 per cent. this year, which made a bad situation worse.
The new clause, which I commend to the House, is designed to put some honesty and transparency back into the method of calculating duty rates. It would be good for the country if it helped to unwind the entirely unjustified duty increase on 21 March.

Mr. Malcolm Chisholm: I shall make only two points given the pressure of business. The right hon. Member for Wells (Mr. Heathcoat-Amory) cannot get away with taking the high moral ground on such a spurious basis. First, we heard the nonsense about fuel duty. We have been hearing about it also in recent weeks from the Scottish National party in Scotland, and in a few minutes we may hear about it again from the SNP. There was a change because of the general election and a Budget soon afterwards.
As the right hon. Member for Wells knows, the last Conservative Budget in November 1996 used the September 1996 uprating. Therefore, in July 1997, the Labour Government had to use September 1997 in accordance with the fuel duty escalator.

Mr. Heathcoat-Amory: Why did they not use the prices index up to June 1997?

Mr. Chisholm: What they used was similar to that. September is the point that is always used for these indexes. It was natural to use September for the first Budget.
Secondly, the right hon. Gentleman has praised previous practice. He knows that there were two different upratings under the Conservative Government. There was one for the headline rate of inflation for pensions and similar benefits, whereas income-related benefits have always been the subject of the Rossi index, as he knows. It would have been far better if he had acknowledged that fact. Perhaps he has forgotten because there is complete confusion in the new clause, in which he asks for tax credits to be governed by the retail prices index, when income-related benefits have always been governed, even by Conservative Governments, by a different index.

Mr. Edward Davey: New clause 7 relates to the timing of the announcement of the increase in income tax allowances. It is a modest new clause, but it would provide real benefits to pensioners who pay income tax. At the moment, because of the problems that there have been with the announcement in the past two years, pensioners are effectively paying an interest-free loan to the Chancellor between April and May. The new clause would reduce the Inland Revenue's administration costs when it sends out the various codings. Perhaps the most important benefit that it would bring would be to end the confusion and anxiety felt by many pensioners when they receive their changed tax coding later in the year.
When the Budget was in March, the longstanding practice was for tax codings to be sent out to all income tax payers in January and February, based on the income tax allowance for that year. Then, after the March Budget, when the new income tax allowances had been announced, a new coding would be sent out to all taxpayers. That was the usual practice with which everyone became familiar, and it did not create a problem because it was done in time for the forthcoming financial year. But there has been a change which has gone unnoticed by many. When the Chancellor rightly aligned class 1 national insurance contributions with income tax, he decided that he would announce the following year's allowances in the November when he announced the changes to the national insurance system. The changes to the allowance for the following year for employed people—the non-pensioner income tax-paying community—were announced in November. The correct PAYE codes could be sent out in January and February, so there was no problem for them.
However, because pensioners do not pay national insurance contributions, the Chancellor has not announced in the pre-Budget report of the previous two years the increases in the pensioner allowances. Therefore, the tax codings for pensioners have gone out in January based on that year's level of allowances, and when the Chancellor has announced the increases in the pensioner income tax allowances in the following March Budget, another tax coding has had to be sent out, in the main just to pensioners. That has meant that pensioners, for the months of April and May, have paid too much income tax, and the extra bureaucracy from the Inland Revenue has caused them concern and anxiety. They have had to ask their tax advisers what on earth it is all about, and when it has been explained to them, they have been flabbergasted. They wonder why on earth the Government are behaving in such a way, why all that bureaucracy is being created and why, they, the pensioners, have to have too much tax deducted from them during the month of April.
New clause 7 would resolve that problem once and for all. It amends the famous section 257C of the Income and Corporation Taxes Act 1988, which was introduced by the Rooker-Wise amendment. The new clause would ensure that the announcement of the upratings for the income tax allowances was made by the latest by 31 December of the year before the tax year to which those upratings apply.
I raised the matter in the House in an Adjournment debate on 9 June 2000. The Paymaster General was kind in replying to that point and to others. She admitted that the Government recognised that this was an issue. She said:
It is something that I should like to address.
She went on:
The hon. Gentleman made a point on coding notices. We are aware of that matter and are examining it. We have not yet found a solution to it, but we are still looking for one.—[Official Report,9 June 2000; Vol. 351, c. 617–18.]
I was grateful for that positive reply from the Paymaster General.
New clause 7 is the solution to which the Government should be looking. The Minister may say that it would tie the Chancellor's hands, but it would not because the

Chancellor would still be free in the March Budget and the future Finance Bill to announce changes over and above what was announced in December to the future uprating of income tax allowances, either up or down. The clause would not tie the hands of the Chancellor or restrict Parliament; it would simply make for good administrative practice. It would mean that low-income pensioners did not make interest-free loans to the Chancellor, which cannot be right.
I hope that the Minister will consider this minor administrative matter, which is important to tens of thousands of pensioners and possibly more. I tried recently to elicit how many by various parliamentary questions, but I was unable to obtain exact figures. However, many are affected by this. It cannot be right that we and other taxpayers are spending money on bureaucracy for something that is completely unnecessary and further disadvantages some of the most disadvantaged people in our society.
If the Government do not accept new clause 7 tonight, I hope that they will go away and make sure that the problem is addressed in the way in which the Chancellor makes future uprating statements for income tax allowances for the employed and for pensioners, and that they will provide statutory protection to prevent such a mistake from happening again.
Liberal Democrats have nothing against new clause 2. It is one way of changing the uprating of the allowances and duties. The Conservative Government had more than one way of doing that, and this Government have more than one way. There is nothing sacrosanct about any particular process for uprating allowances and duties, so Liberal Democrats have no problem in supporting the new clause. There is a genuine case for it in the sense that the uprating would be based on a reality—a figure which could be proved, analysed and agreed upon, rather than a forecast figure, which might not be the eventual inflation figure for that period. One need not waste a huge amount of time on it. It is a relatively simple measure concerning a technocratic issue.
The right hon. Member for Wells (Mr. Heathcoat-Amory) made a few political points, some of which were well made. There is no doubt that the two upratings in the Government's first year were rather stealthy. There is no doubt that pensioners think it rather odd that their pensions have gone up by 1.1 per cent. while fuel duty has gone up by 3.4 per cent. and council tax often by far more than that. People on incomes that are increasing only modestly are concerned. New clause 2 may be one mechanism by which to address that unfairness and ensure that people do not perceive that this Government or other Governments are treating them unfairly.
However, new clause 2 is only a tiny measure to get rid of that unfairness. What we really need are higher basic state pensions for the ordinary pensioner. Unfortunately, we did not see that in today's statement or last April, and that is a shame. It is about time that the Government addressed that issue, which is a matter of a great deal more substance than new clause 2. However, as I said, Liberal Democrats have no problem with it.

Mr. Alasdair Morgan: I would like to speak briefly to new clause 2, specifically in relation to fuel duties. I am glad that you called me,


Mr. Deputy Speaker, because I would have hated to disappoint the hon. Member for Edinburgh, North and Leith (Mr. Chisholm), who would not otherwise have had a chance to listen to the "usual nonsense", as he called it, from the SNP.
It is a serious matter that fuel duties have been put up by more than the real rate of inflation, particularly for my constituency, which has the third lowest level of income of all the Scottish constituencies, but about the third highest level of car ownership. That is not because the people in my constituency, being of average lower income, are perversely buying cars and luxury items. It is because the ownership of a car, or often two cars in a family, is essential to earning a livelihood.
Therefore, to increase one of the principal costs of car ownership by more than the real rate of inflation is insupportable. Because the tax, certainly in Galloway and in many other rural areas, is paid by those on lower incomes, regardless of what those incomes are, effectively it is a regressive tax which is being increased by more than the rate of inflation.
That would be bad enough if tax were the only influence on the price of petrol, but it is not. The right hon. Member for Glasgow, Anniesland (Mr. Dewar), then Secretary of State for Scotland, said in the Scottish Grand Committee last year:
The oil price is likely to stay at about $10 to $12 a barrel—at least in the foreseeable future—[Official Report, Scottish Grand Committee,1 February 1999; c. 8.]
This June, the oil price touched $31 a barrel. The right hon. Gentleman does not seem to have displayed great foresight. Perhaps it is as well that he is not in charge of Treasury forecasts.
In the light of that, perhaps the Government thought that they could get away with such increases and their mechanism for them when oil prices were very low, and they thought that they were likely to remain low. That is no longer the case. Petrol has gone up for other reasons; it has gone up because the price of oil has gone up. That is a very good reason why the Government should revisit the mechanism for taxing petrol. There are, therefore, three reasons why.
First, as I have said, the price of petrol is going up anyway. Secondly, as the right hon. Member for Wells (Mr. Heathcoat-Amory) said, as a result Government revenues elsewhere are going up. They are going up from VAT on oil; they are going up increasingly from the petroleum revenue tax. I think it is estimated that £20 billion over the next four years will be gained from the PRT. Lastly, as the right hon. Gentleman also said, the Government are suffering a severe loss of revenue because of above-inflation increases in the price of diesel fuel and petrol here while there is cheaper fuel elsewhere.
In my constituency, the nearest to Northern Ireland, we are very conscious that cross-channel hauliers—I am speaking about the north channel between Galloway and Northern Ireland—very often do not fill up in Galloway or in Northern Ireland, but fill up in the Republic, in places such as Dundalk. That means money lost to the Exchequer, because basically we are trying to be too greedy. The mark-up on what would be the retail price of petrol without the duty is, I believe, 333 per cent., which is fairly good by anybody's standards.
It is not just ordinary people who are paying the tax. It is also heaped on to the police, the fire service, the ambulance service and school buses. Every time we

increase the tax by more than the real rate of inflation, the costs of all those essential services go up at the same time. That is insupportable.
The Chancellor has made much of the fact that he has done away with the automatic fuel escalator. I do not see that there is any point in doing away with an automatic escalator if what we get instead is a manual escalator. We need a much more sensible approach to the issue. I urge the Government to think again before it is too late for many businesses in the rural economy, and perhaps before it is too late for their majority at the next election.

Mr. Jack: I support my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), who made a telling case for standardising indexation changes based on a retrospective look at the retail prices index. One feature that has not come out in the debate so far is the accuracy of the inflation forecast. If by chance inflation does not move ahead at the same rate as the forecast increase used for the various tax purposes that my right hon. Friend outlined, the Government have a windfall gain, but they do not give themselves an obligation to pay back to the taxpayer any of the extra money obtained through fortuitously lower inflation than forecast.
As has been said in the debate, the windfall gain in VAT receipts as a result of the rise in oil prices, with its knock-on effect on petrol prices, bears witness to the fact that the present Government enjoy using every opportunity to take the people's money and put it into the Treasury's coffers to do with it as they think fit. Therefore, in terms of safety and equity, my right hon. Friend is correct.
I should like to conclude by expressing a provocative thought. The whole question of uprating the Government's income is perhaps a disincentive to their making certain that they always make every pound of taxpayers' money work as hard as possible. The Government can simply say that they can guarantee that a certain amount of money will come in through uprating, but a company cannot assume that it will receive automatic price increases. A company will try extremely hard to make every penny work as hard as possible, because it cannot guarantee receipt of that extra income.
We have got ourselves into the way of thinking that the Government's position must always be protected. From the individual's point of view, I can well appreciate why indexation should continue to be a regular feature, because he or she has less room for manoeuvre; in the real world an individual may well not receive a pay increase, but he still has his taxes to pay. Therefore, some form of price index-insulated indexation is important to him if he is not to be worse off year on year in real terms. But the Government's automatic assumption that they will receive money through indexation perhaps makes them a bit sloppy around the edges when it comes to spending the public's money. That may be a feature that the House will return to when it debates today's statement by the Chancellor.

Mr. Timms: We have been over the ground covered by new clause 2 on a number of occasions. This is probably the third time that we have heard the speech of the right hon. Member for Wells (Mr. Heathcoat-Amory). I had hoped that he might have something different to say on this occasion, but I was disappointed. He made his points in the usual way.
I should like to set out the position again. It is standard practice for inflation increases in excise duties to be based on a forecast of September retail prices index figures, and for income tax allowances and pensions to be based on the previous September's out-turn figure for the retail prices index.

Mr. Jack: The Financial Secretary used the expression "standard practice". Why must it be the standard practice? Why could the hon. Gentleman not change the standard practice to a more equitable practice if he wished?

Mr. Timms: Of course, the practice could be changed, but I want to explain what the practice is. September is the date that has been used on both sides, in excise and in allowances, with a forecast in the case of excise duties and a look back at the previous year's figures in the case of allowances.

Mr. Alasdair Morgan: If that practice is followed, and if—heaven forbid—Treasury forecasters are always pessimistic, we shall continue to have an increase each year that turns out to be higher than inflation, and gradually the average prices index and the duty levels will diverge.

Mr. Timms: I am glad to be able to reassure the hon. Gentleman on that point. The duty increases since the election have been less than they would have been if inflation had been used. The duties being paid by the hon. Gentleman's constituents are less than they would be if we were to take up his suggestion.
The Opposition have got excited about this matter on a number of occasions and have drawn attention to the fact that, this year, inflation increases for duties have been greater than for allowances and pensions. It is a matter of swings and roundabouts. Last year, the reverse was the case, and allowances and pensions went up by 3.2 per cent. while duties went up by 1.3 per cent. We heard nothing about stealth handouts in the debate at that time. In a era of stable inflation—the result of the extremely successful management of the economy that we have enjoyed over the past three years—things even out over time. As I have been able to point out, duties have increased by less than inflation over that period. All this fuss has been entirely misplaced.
Announcement of the personal allowance in November means that the latest practical reference point for income tax allowance indexation is September—the month preceding November would not work. It would be impractical—this is a suggestion in new clause 2—for the Budget to be early in the month. If the Budget were in early March, the new clause would require the duty increase to be the change in the RPI in the year to February, which would not even have been published by that time. It is an unworkable proposal.
Another difficulty with the proposal is that different indexation figures would be used for different allowances. Basic personal allowances would rise by the increase in RPI in the year to October, while the other allowances and the rate bands would rise in line with the RPI increase to February. That is just within the allowances. There is no sense in that.
I should remind Conservative Members that it was their Government who introduced the Income and Corporation Taxes Act 1988, which requires the use of the September RPI for income tax as opposed to the much more arbitrary and less satisfactory proposition that they are advancing today.
I noticed that, in response to my intervention, the right hon. Member for Wells was understandably shy when it came to talking about what the previous Government did with income tax allowances. The previous Government froze income tax allowances for 1993 and 1994; they did not uprate them at all. They also froze the basic rate limit, not just for those two years, but for 1990 and 1992 as well. As a result, they raised taxes by over £2 billion. The measures to freeze allowances and the basic rate threshold with effect for April 1993 and April 1994 brought in about £1.75 billion. The Chief Secretary responsible for that was the current shadow Chancellor. The Opposition are a great deal more vulnerable on this than the Government. The proposal is unworkable.
The right hon. Member for Wells or it may have been his hon. Friends in Committee—said that the Red Book does not mention the figure of 3.4 per cent. It does. It appears several times in table A.9 on page 146 and the figure 3.41 per cent. appears in table A.12 on page 148. It is always worth reading the Red Book. It is a practice that I commend to Opposition Members.
I was rather surprised by the fact that the right hon. Gentleman said that he had been unable to establish the figure for revenue lost through cross-border shopping and smuggling of oil in Northern Ireland. We have said on a number of occasions that we estimate that to be £100 million in 1998. That has been published in parliamentary answers and it was stated in Committee. We have published that figure on a number of occasions, and I am sorry that the right hon. Gentleman missed it.
6.45 pm
The hon. Member for Galloway and Upper Nithsdale (Mr. Morgan) raised concerns, specifically about fuel duty. I hope that he will be reassured by what I have said about the impact of the method used for inflation uprating of duties. He expressed particular concern, for reasons that I well understand, about the position of low-income constituents in areas such as his. They will benefit particularly from the changes that we have announced to vehicle excise duty. We have extended the threshold for the lower rate from 1100 cc to 1200 cc vehicles. His constituents will also benefit from the new arrangements being introduced from next year for lower rates of vehicle excise duty on fuel efficient cars. Those measures will be particularly welcome to the hon. Gentleman and his constituents.

Mr. Morgan: Will the Minister accept that those measures are much more likely to benefit those who can afford to buy new cars? People on low incomes tend to buy second-hand cars, often without a low engine size because such cars tend to be cheaper on the second-hand market.

Mr. Timms: The concession for vehicles of less than 1200 cc applies equally to new and old cars. I anticipate that the hon. Gentleman's constituents who are on a limited income and driving an inexpensive car will welcome those measures.

Mr. David Heath: I wonder whether the hon. Gentleman can help me with a query


from a constituent who points out that the differential between unleaded petrol and leaded petrol was introduced as a perfectly proper environmental measure. Why is that differential maintained between unleaded petrol and lead replacement petrol? That affects people who own older cars, which may not be able to run on unleaded fuel.

Mr. Timms: The differential with lead replacement petrol is a reflection of the different costs in the production process. I should be happy to drop the hon. Gentleman a line setting out the details of that arrangement.
I am grateful to the hon. Member for Kingston and Surbiton (Mr. Davey) for his explanation of the new clause. I know that he takes a keen interest in the way that the tax system affects pensioners. As he said, my hon. Friend the Paymaster General had an opportunity to debate a wide range of issues of concern to pensioners with him in the Adjournment debate on 9 June and, in particular, to consider the proposals made by the low income tax reform group.
For reasons that he spelled out, the hon. Gentleman would prefer the Revenue to reflect in the PAYE codes on occupational pensions, which are issued in January and applied in April, the increased amount of state pension and the increased amount of allowances resulting from indexation. His proposal is that the Revenue would be able to do that if the Treasury order setting out index values of allowances were published by the end of December rather than on Budget day the following March. Publishing that order earlier would not have that effect because it is always possible for Parliament to override indexation, as it did in 1999 when pensioner allowances rose by up to £200 more than the indexation required.

Mr. Edward Davey: I understand that point, but surely in most years and in most circumstances there would not need to be a second tax coding because Parliament would usually go by the normal Rooker-Wise index.

Mr. Timms: I know that the hon. Gentleman feels strongly about this. My hon. Friend the Paymaster General gave him an assurance during the debate on 9 June that she would look into this matter. I know that she is doing so with great care and I hope that the hon. Gentleman will feel that he can accept that assurance and not press this issue.

Mr. Heathcoat-Amory: The Minister started by saying that we had debated these matters before, but we have raised them again because we still have not got any answers. I will make a deal with him—I shall stop raising the subject if he starts giving some answers. The debate that we have just had illustrates my point because, for example, the Minister did not apologise on behalf of the Paymaster General for the flat untruth of her assertion that the previous Government had indulged in the same subterfuge.
The fact is—I note that the Minister did not disagree—that we had an historical system for uprating all the allowances and duties. It was the incoming Labour Government who changed the rules to uprate according to a forward-looking estimate of inflation. That is why fuel duty and other indirect taxes went up by 3.4 per cent. this year, instead of increasing by the pension increase index of 1.1 per cent. I ask the Minister to correct that example

of a Treasury Minister misleading the House. That is a serious enough point to draw the Minister into a late intervention, and I will give way to him if he will now agree that that was an example of a Minister giving an incorrect reply. The fact that he will not do so only confirms our allegation that no one believes what this Government say about taxes any more. It is no good the Prime Minister saying that he now wants a lot of eye-catching initiatives instead of policies, when he has already lost the trust of the House and of the wider public. The Government cannot even admit it when they have made a mistake.
The Minister then boasted that there was no problem because the Government had achieved what he called low and stable inflation. If that is the case, why are they putting up alcohol and road fuel duties by nearly 3.5 per cent., when they have an inflation target of 2.5 per cent.? I do not call that either low or stable.
The Minister also said that the figure of 3.4 per cent. appears in the Red Book so it is not a secret. I never said that it was. We spotted quickly the divergence and that the Government were putting up allowances by only 1.1 per cent. and all other duties by nearly 3.5 per cent. My point, which I repeat, is that the issue of inflation and the inflation index is discussed in no fewer than three places in the Red Book but at no point in those discussions does the figure of 3.4 per cent. appear. The Minister cannot contradict that point.

Mr. Nicholas Soames: Does my right hon. Friend agree that, with that eagle-eyed clarity and persistence that led him to seek out that figure, he has also drawn other inconsistencies in the Red Book to the attention of the House?

Mr. Heathcoat-Amory: That was a typically sagacious intervention by my hon. Friend, who is clearly on form at an early point in our proceedings. We have said enough to demonstrate beyond doubt that on this issue we are right—and I include my hon. Friend in that observation. We are on the side of right and truth and it is the Government who have made a mistake. We shall divide the House on the issue.

Question put, That the clause be read a Second time:—

The House divided: Ayes 168, Noes 319.

Division No. 275]
[6.54 pm
AYES
Allan, RichardBurnett, John
Amess, DavidBurns, Simon
Arbuthnot, Rt Hon JamesBurstow, Paul
Baldry, TonyButterfill, John
Ballard, JackieCash, William
Beggs, RoyChapman, Sir Sydney (Chipping Barnet)
Beith, Rt Hon A J
Bell, Martin (Tatton)Chidgey, David
Bercow, JohnChope, Christopher
Beresford, Sir PaulClappison, James
Bottomley, Peter (Worthing W)Clarke, Rt Hon Kenneth (Rushcliffe)
Bottomley, Rt Hon Mrs Virginia
Brake, TomClifton-Brown, Geoffrey
Brand, Dr PeterCollins, Tim
Brazier, JulianCormack, Sir Patrick
Breed, ColinCotter, Brian
Brooke, Rt Hon PeterCran, James
Bruce, Ian (S Dorset)Curry, Rt Hon David
Bruce, Malcolm (Gordon)Davey, Edward (Kingston)




Davies, Quentin (Grantham)Madel, Sir David
Davis, Rt Hon David (Haltemprice)Major, Rt Hon John
Donaldson, JeffreyMalins, Humfrey
Dorrell, Rt Hon StephenMaples, John
Evans, NigelMawhinney, Rt Hon Sir Brian
Ewing, Mrs MargaretMay, Mrs Theresa
Faber, DavidMoore, Michael
Fabricant, MichaelMorgan, Alasdair (Galloway)
Fallon, MichaelNorman, Archie
Fearn, RonnieOaten, Mark
Flight, HowardO'Brien, Stephen (Eddisbury)
Forth, Rt Hon EricOttaway, Richard
Foster, Don (Bath)Paice, James
Fox, Dr LiamPaterson, Owen
Fraser, ChristopherPortillo, Rt Hon Michael
Garnier, EdwardPrior, David
George, Andrew (St Ives)Randall, John
Gibb, NickRendel, David
Gidley, SandraRobathan, Andrew
Gill, ChristopherRobertson, Laurence
Gillan, Mrs CherylRoe, Mrs Marion (Broxbourne)
Gorman, Mrs TeresaRoss, William (E Lond'y)
Gorrie, DonaldRowe, Andrew (Faversham)
Green, DamianRuffley, David
Greenway, JohnRussell, Bob (Colchester)
Gummer, Rt Hon JohnSt Aubyn, Nick
Hague, Rt Hon WilliamSanders, Adrian
Hamilton, Rt Hon Sir ArchieSayeed, Jonathan
Hammond, PhilipShepherd, Richard
Hancock, MikeSimpson, Keith (Mid-Norfolk)
Harris, Dr EvanSmith, Sir Robert (W Ab'd'ns)
Harvey, NickSoames, Nicholas
Hawkins, NickSpelman, Mrs Caroline
Hayes, JohnSpicer, Sir Michael
Heald, OliverSpring, Richard
Heath, David (Somerton & Frome)Stanley, Rt Hon Sir John
Heathcoat-Amory, Rt Hon DavidStreeter, Gary
Hogg, Rt Hon DouglasStunell, Andrew
Horam, JohnSwayne, Desmond.
Howard, Rt Hon MichaelSyms, Robert
Howarth, Gerald (Aldershot)Tapsell, Sir Peter
Hughes, Simon (Southward N)Taylor, Ian (Esher & Walton)
Jack, Rt Hon MichaelTaylor, John M (Solihull)
Jackson, Robert (Wantage)Taylor, Sir Teddy
Jenkin, BernardThomas, Simon (Ceredigion)
Johnson Smith, Rt Hon Sir GeoffreyTonge, Dr Jenny
Townend, John
Keetch, PaulTredinnick, David
Kennedy, Rt Hon Charles (Ross Skye & Inverness W)Trend, Michael
Tyler, Paul
Key, RobertTyrie, Andrew
King, Rt Hon Tom (Bridgwater)Viggers, Peter
Kirkbride, Miss JulieWaterson, Nigel
Kirkwood, ArchyWebb, Steve
Laing, Mrs EleanorWhitney, Sir Raymond
Lait, Mrs JacquiWhittingdale, John
Letwin, OliverWigley, Rt Hon Dafydd
Lewis, Dr Julian (New Forest E)Wilkinson, John
Lidington, DavidWilletts, David
Lilley, Rt Hon PeterWillis, Phil
Livsey, RichardWilshire, David
Lloyd, Rt Hon Sir Peter (Fareham)Winterton, Mrs Ann (Congleton)
Loughton, TimWinterton, Nicholas (Macclesfield)
Luff, PeterYeo, Tim
McIntosh, Miss AnneYoung, Rt Hon Sir George
MacKay, Rt Hon Andrew
Maclean, Rt Hon DavidTellers for the Ayes:
Maclennan, Rt Hon RobertMr. Peter Atkinson and
McLoughlin, PatrickMr. Stephen Day.


NOES
Ainger, NickAshton, Joe
Alexander, DouglasAtkins, Charlotte
Allen, GrahamAustin, John
Anderson, Donald (Swansea E)Barnes, Harry
Anderson, Janet (Rossendale)Barron, Kevin



Battle, JohnDean, Mrs Janet
Bayley, HughDenham, John,
Beard, NigelDismore, Andrew
Begg, Miss AnneDobbin, Jim
Benn, Hilary (Leeds C)Doran, Frank
Benn, Rt Hon Tony (Chesterfield)Dowd, Jim
Benton, JoeDrew, David
Bermingham, GeraldDunwoody, Mrs Gwyneth
Berry, RogerEagle, Angela (Wallasey)
Betts, CliveEagle, Maria (L 'pool Garston)
Blackman, LizEdwards, Huw
Blears, Ms HazelEllman, Mrs Louise
Blizzard, BobEnnis, Jeff
Boateng, Rt Hon PaulField, Rt Hon Frank
Borrow, DavidFisher, Mark
Bradley, Keith (Withington)Fitzpatrick, Jim
Bradley, Peter (The Wrekin)Flint, Caroline
Bradshaw, BenFlynn, Paul
Brinton, Mrs HelenFoster, Michael Jabez (Hastings)
Brown, Rt Hon Nick (Newcastle E)Foster, Michael J (Worcester)
Brown, Russell (Dumfries)Fyfe, Maria
Browne, DesmondGardiner, Barry
Buck, Ms KarenGerrard, Neil
Burden, RichardGibson, Dr Ian
Burgon, ColinGilroy, Mrs Linda
Butler, Mrs ChristineGodsiff, Roger
Byers, Rt Hon StephenGoggins, Paul
Caborn, Rt Hon RichardGolding, Mrs Llin
Campbell, Mrs Anne (C'bridge)Gordon, Mrs Eileen
Campbell, Ronnie (Blyth V)Griffiths, Jane (Reading E)
Campbell-Savours, DaleGriffiths, Nigel (Edinburgh S)
Cann, JamieGrocott, Bruce
Caplin, IvorGrogan, John
Casale, RogerGunnell, John
Caton, MartinHain, Peter
Cawsey, IanHall, Patrick (Bedford)
Chapman, Ben (Wirral S)Hamilton, Fabian (Leeds NE)
Chaytor, DavidHanson, David
Chisholm, MalcolmHeal, Mrs Sylvia
Clapham, MichaelHealey, John
Clark, Rt Hon Dr David (S Shields)Henderson, Doug (Newcastle N)
Clark, Paul (Gillingham)Henderson, Ivan (Harwich)
Clarke, Charles (Norwich S)Hepburn, Stephen
Clarke, Eric (Midlothian)Heppell, John
Clarke, Rt Hon Tom (Coatbridge)Hesford, Stephen
Clelland, DavidHewitt, Ms Patricia
Clwyd, AnnHinchliffe, David
Coaker, VernonHodge, Ms Margaret
Coffey, Ms AnnHome Robertson, John
Cohen, HarryHood, Jimmy
Coleman, IainHope, Phil
Colman, TonyHopkins, Kelvin
Connarty, MichaelHowarth, Alan (Newport E)
Cook, Rt Hon Robin (Livingston)Howells, Dr Kim
Cooper, YvetteHoyle, Lindsay
Corbett, RobinHughes, Kevin (Doncaster N)
Corbyn, JeremyHumble, Mrs Joan
Corston, JeanHurst, Alan
Cousins, JimHutton, John
Cox, TomIddon, Dr Brian
Crausby, DavidIllsley, Eric
Cryer, Mrs Ann (Keighley)Jackson, Ms Glenda (Hampstead)
Cryer, John (Hornchurch)Jackson, Helen (Hillsborough)
Cunningham, Rt Hon Dr Jack (Copeland)Jenkins, Brian
Johnson, Miss Melanie (Welwyn Hatfield)
Cunningham, Jim (Cov'try S)
Curtis-Thomas, Mrs ClaireJones, Rt Hon Barry (Alyn)
Dalyell, TamJones, Mrs Fiona (Newark)
Darling, Rt Hon AlistairJones, Helen (Warrington N)
Darvill, KeithJones, Ms Jenny (Wolverh'ton SW)
Davey, Valerie (Bristol W)
Davidson, IanJones, Jon Owen (Cardiff C)
Davies, Geraint (Croydon C)Jones, Dr Lynne (Selly Oak)
Davis, Rt Hon Terry (B'ham Hodge H)Jones, Martyn (Clwyd S)
Jowell, Rt Hon Ms Tessa
Dawson, HiltonKeeble, Ms Sally





Keen, Alan (Feltham & Heston)
Powell, Sir Raymond


Keen, Ann (Brentford & Isleworth)
Prentice, Ms Bridget (Lewisham E)


Kelly, Ms Ruth
Prentice, Gordon (Pendle)


Kennedy, Jane (Wavertree)
Primarolo, Dawn


Khabra, Piara S
Prosser, Gwyn


Kidney, David
Purchase, Ken


Kilfoyle, Peter
Quin, Rt Hon Ms Joyce


King, Andy (Rugby & Kenilworth)
Quinn, Lawrie


Kumar, Dr Ashok
Radice, Rt Hon Giles


Ladyman, Dr Stephen
Rammell, Bill


Lawrence, Mrs Jackie
Rapson, Syd


Laxton, Bob
Reid, Rt Hon Dr John (Hamilton N)


Lepper, David
Rooker, Rt Hon Jeff


Leslie, Christopher
Rooney, Terry


Levitt, Tom
Ross, Ernie (Dundee W)


Lewis, Ivan (Bury S)
Rowlands, Ted


Lewis, Terry (Worsley)
Roy, Frank


Liddell, Rt Hon Mrs Helen
Ruane, Chris


Linton, Martin
Ruddock, Joan


Lloyd, Tony (Manchester C)
Russell, Ms Christine (Chester)


Lock, David
Ryan, Ms Joan


McAllion, John
Salter, Martin


McAvoy, Thomas
Sarwar, Mohammad


McCabe, Steve
Savidge, Malcolm


McCafferty, Ms Chris
Sawford, Phil


McDonagh, Siobhain
Sedgemore, Brian


McDonnell, John
Shaw, Jonathan


McFall, John
Sheerman, Barry


McGuire, Mrs Anne
Sheldon, Rt Hon Robert


McIsaac, Shona
Shipley, Ms Debra


McKenna, Mrs Rosemary
Short, Rt Hon Clare


Mackinlay, Andrew
Simpson, Alan (Nottingham S)


McNamara, Kevin
Skinner, Dennis


McNulty, Tony
Smith, Miss Geraldine (Morecambe & Lunesdale)


MacShane, Denis



Mactaggart, Fiona
Smith, Jacqui (Redditch)


McWalter, Tony
Smith, John (Glamorgan)


McWilliam, John
Smith, Llew (Blaenau Gwent)


Mahon, Mrs Alice
Snape, Peter


Marsden, Gordon (Blackpool S)
Soley, Clive


Marsden, Paul (Shrewsbury)
Southworth, Ms Helen


Marshall, David (Shettleston)
Squire, Ms Rachel


Marshall, Jim (Leicester S)
Steinberg, Gerry


Martlew, Eric
Stevenson, George


Meacher, Rt Hon Michael
Stewart, David (Inverness E)


Meale, Alan
Stewart, Ian (Eccles)


Merron, Gillian
Stinchcombe, Paul


Michael, Rt Hon Alun
Stoate, Dr Howard


Michie, Bill (Shef'ld Heeley)
Strang, Rt Hon Dr Gavin


Miller, Andrew
Straw, Rt Hon Jack


Mitchell, Austin
Stringer, Graham


Moffatt, Laura
Sutcliffe, Gerry


Moonie, Dr Lewis
Taylor, Rt Hon Mrs Ann (Dewsbury)


Moran, Ms Margaret



Morley, Elliot
Taylor, David (NW Leics)


Morris, Rt Hon Ms Estelle (B'ham Yardley)
Temple-Morris, Peter



Thomas, Gareth (Clwyd W)


Morris, Rt Hon Sir John (Aberavon)
Timms, Stephen



Todd, Mark


Mountford, Kali
Touhig, Don


Mudie, George
Trickett, Jon


Murphy, Rt Hon Paul (Torfaen)
Truswell, Paul


O'Brien, Bill (Normanton)
Turner, Dennis (Wolverh'ton SE)


O'Hara, Eddie
Turner, Dr Desmond (Kemptown)


Olner, Bill
Turner, Dr George (NW Norfolk)


O'Neill, Martin
Turner, Neil (Wigan)


Organ, Mrs Diana
Twigg, Derek (Halton)


Osborne, Ms Sandra
Tynan, Bill


Palmer, Dr Nick
Vis, Dr Rudi


Pearson, Ian
Walley, Ms Joan


Pickthall, Colin
Ward, Ms Claire


Plaskitt, James
Wareing, Robert N


Pollard, Kerry
Watts, David


Pond, Chris
White, Brian


Pope, Greg
Whitehead, Dr Alan


Pound, Stephen
Wicks, Malcolm





Williams, Rt Hon Alan (Swansea W)
Worthington, Tony



Wray, James


Williams, Alan W (E Carmarthen)
Wright, Anthony D (Gt Yarmouth)


Williams, Mrs Betty (Conwy)
Wright, Tony (Cannock)


Wills, Michael
Wyatt, Derek


Winnick, David



Winterton, Ms Rosie (Doncaster C)
Tellers for the Noes:


Woodward, Shaun
Mr. Mike Hall and


Woolas, Phil
Mr. Robert Ainsworth.

Question accordingly negatived.

New Clause 6

MARRIED COUPLES ALLOWANCES

'The Chancellor of the Exchequer may by order introduce regulations to provide for increases in personal tax allowances to recognise married couples. Orders made under this section may only be made if a draft of the instrument containing the order has been laid and approved by resolution of the House of Commons.'.—[Mr. Ottaway.]

Brought up, and read the First time.

Mr. Richard Ottaway: I beg to move, That the clause be read a Second time.
The new clause, which has been tabled by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), my hon. Friend the Member for Arundel and South Downs (Mr. Flight) and myself, refers to marriage. I do not know whether. you have received the married couples allowance, Mr. Deputy Speaker. If so, like millions of people in the country, you will have been sent a document in the past few weeks which consists of explanatory notes and a form that must be filled in if one is to claim children's tax credit. It states:
The Children's Tax Credit is replacing the Married Couple's Allowance and the Additional Person Allowance.
Are you likely to have a child under 16 living with you during the tax year starting on 6 April 2001? If yes, you may be able to claim Children's Tax Credit.
I suspect that you are a normal citizen, Mr. Deputy Speaker. I do not know whether you have a child under 16, but the important point is that there are a heck of a lot of people in this country who do not have a child under 16. To say that the children's tax credit is replacing the married couples allowance is untrue, inaccurate and a distortion of what the Government intend. I am not sure whether it is spin or underspin but, whatever it is, that statement is wrong.

Mr. John Gummer: Has my hon. Friend noticed that the form, which is a document about marriage, insists on referring to one's "partner"? May I put it to him that many married women do not wish to be referred to as partners because they are married and have taken on the responsibility of a lifelong union to look after the children for whom the allowance is supposed to be paid? Is it not about time that people had enough respect for married women to refer to them as married, not partners, which can involve all kinds of arrangement, many of which are not the sort that my wife and many other wives wish to enter into?

Mr. Ottaway: I am grateful to my right hon. Friend. The form goes far too far in political correctness. We have


seen too much of that sort of stuff. As I happen to know my right hon. Friend's wife, I know that she would be offended by being described as a partner.

Mr. Gummer: Did my hon. Friend notice the grins on the faces of Labour Members, especially those on the Front Bench, when he mentioned that many women do not share their loose attitudes towards marriage?

Mr. Ottaway: rose—

The Paymaster General (Dawn Primarolo): rose—

Mr. Deputy Speaker (Mr. Michael Lord): Order. The hon. Member for Croydon, South (Mr. Ottaway) must deal with one intervention before he takes the next, if he wants to do so.

Mr. Ottaway: I will give way, but I will first answer the point raised by my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer). I have some respect for the Paymaster General and the Economic Secretary, who are sitting on the Front Bench; whether they wish to be described as a partner is entirely a matter for them.

Dawn Primarolo: My objection is to being called a loose women. I am married and I consider my husband to be my partner—my partner in life. The suggestion made by the right hon. Member for Suffolk, Coastal (Mr. Gummer) was out of order. I am sure that he would like to correct the impression that he gave to women of his attitude towards them.

Mr. Ottaway: I do not want to get caught in the crossfire. If the House does not mind, I shall move on.
The deception of replacing the married couples allowance with the children's tax credit will hit millions of families very hard. Until April, every married couple was in receipt of £197 a year. That money is lost. Indeed, there is a gap between the two provisions because the children's tax credit does not come into effect until next year.

Mr. David Taylor: If the former married couples allowance was such a great idea—it was of course available to people who were not married but had children and lived together—why did the hon. Gentleman's Government reduce it in two stages to 20 per cent. and then 15 per cent? Are not this Government continuing that process? Does he not endorse the approach that his Government took?

Mr. Ottaway: Whatever level the allowance got to, the important point is that the principle of marriage was recognised in the tax and benefits system. We undertake to maintain that, unlike the hon. Gentleman's party, which has, effectively, undermined the concept of marriage.
Until April, one earner on a salary of £34,000 a year would have paid income tax last year at 23 per cent. and this year at 22 per cent., but the abolition of the married couples allowance has taken that person into the higher tax band. The House may not be aware that if one is in the higher tax band, one does not qualify for children'

tax credit. We estimate that more than 1 million people in the higher rate tax band will not be entitled to the children's tax credit even if they have children under the age of 16. So, people will not qualify because they are paying too much tax and are being moved into different tax bands.
The replacement system is an utterly inadequate form of compensation. That is why, when the Conservatives win the next election, we will reintroduce recognition of marriage in the system by reintroducing the married couples allowance. We shall do so for two reasons. First, we think that there are benefits to society from marriage. Families are where society starts and ends. Family breakdown weakens a free and ordered society. Parents do their best for their children in a wide range of circumstances, but, in general, children from two-parent families do better at school, have better chances in life and are less likely to end up ensnared in crime. Two-parent families are better units if the parents are married.
The Government should not discriminate against the one institution that has been shown to help families stick together and help the process of raising children: marriage. The Government have attacked marriage; they have abolished the married couples allowance and discriminated against couples in the structure of the working families tax credit. That is why we are pledged to recognise the benefits of marriage in the tax system.

Mr. Geraint Davies: Will the hon. Gentleman give way?

Mr. Ottaway: I will not give way to the hon. Gentleman.
Secondly, we make the pledge to reintroduce the married couples allowance because of the defects in the children's tax credit. Two earners who live together and both earn £30,000 a year, with a household income of £60,000 a year, will qualify for the children's tax credit. Yet, one earner on £40,000 a year will not do so. What logic is there to that?
The second anomaly in the children's tax credit is its ineffectiveness as a benefit. The Financial Secretary said in Committee:
We have increased substantially support for families with children through the working families tax credit, through the increase in the children's premium income support and through child benefit.—[Official Report, Standing Committee H, 23 May 2000; c. 333.]
The Minister failed to say that the payment of £8 a week in children's tax credit is substantially reduced by the impact of the working families tax credit and housing and council tax benefits.
I am obliged to Mr. Roger Cockfield, reader in taxation at De Montfort university, Leicester, who has sent me copies of the model that he has compiled. He has demonstrated that a lone parent with two young children earning £180 a week—someone working for 12 hours at, say, £15 an hour is not an unusual example—faces a loss of £5.33 in housing benefit and £1.70 in council tax benefit when he or she receives £8.50 of children's tax credit. He or she is only £1.27 better off—not the £8.50 claimed.
The children's tax credit is no substitute. It is available to the better off but not to the poorer people in our society. I was always under the impression that a Labour


Government were there to protect the poorer people rather than to give tax breaks to the better off. If anything illustrates why they are losing support in their heartlands, it is much trumpeted measures such as the children's tax credit, which goes not to the poorer people but to the better off.
The form sent in the past few weeks to families who used to receive married couples allowance also contains the following sentence:
If you are likely to have a child under 16 living with you during the tax year—
it goes on to describe the tax year—
you may be able to claim the Children's Tax Credit. If not, please throw this form away and accept our apologies for troubling you. Do not return blank forms to us.
I do not know how many blank forms might have been sent back, but I conclude by reading a letter that was sent to the Chancellor of the Exchequer, No. 11 Downing street from a gentleman in Merseyside. It reads:
Dear Sir,
Please find enclosed my claim form for Children's tax credit returned as my wife and I do not meet the criteria required. Like millions of similar couples, i.e. children grown up and gone, and not 65 before 5th April 2000, we feel that you have, dare I say, stealthily, removed the acknowledgement by the Government of the merits of being married.
How you have the audacity to claim that that Children's Tax credit replaces the married couple's allowance and Additional Personal Allowance amazes me. I will be 65 in December this year, and as a result of your 1999 Budget changes, I, since April of this year, now pay approx. £20 per month tax on my modest company pension, and when I reach 65 I will be further taxed on my old age pension, unlike my elder brother, who is one of the privileged pensioners that you have created, i.e. 65 before 5th April 2000 who still retains the Married Couple's allowance.
Hon. Members might think that that letter came from a Conservative party supporter—Labour Members are nodding their heads. They think they know what the letter says because it was sent to No. 11. However, it concludes:
I find that as a lifelong socialist, an ex Labour party member, with a son who is a Labour councillor, that your new Tax changes are totally unacceptable, and unless some revision to these Fagin-like measures is made in this year's Budget, then my vote will go elsewhere.
I can think of nothing else that better shows why the Government are losing support. They sit there like rabbits stuck in the headlights, watching the on-coming change in the political direction of this country which such proposed measures will cause. The Conservative party's tax system will provide benefits for rich and poor, because we are the party of one-nation conservatism. We shall stand up for the Mr. Speakmans of this world. We will not say that a tax credit is worth £8.50, when it is in fact worth £1.27.

Mr. Chisholm: I was tempted to speak because, during an earlier debate, those on the Conservative Front Bench referred to previous practice, as discussed when we first raised the issue when considering the 1994 Finance Bill. During the Division, I was able to read an interesting speech that the current shadow Chancellor made then, in which he justified taking more than £1 billion out of the married couples allowance. I invite Conservative Members to read that speech, as well as the previous one that I made, in which I said:
Everyone knows that families have suffered most in tax terms over the lifetime of the Conservative Government.—[Official Report, Standing Committee A,22 February 1994; c. 345.]

I was particularly referring to families with children. It is precisely their problems that the current Government have been reversing during the past three years.
It is a simple fact that no additional costs are associated with marriage, but that many additional costs are associated with having children. That is why the children's tax credit, the working families tax credit and the record rise in child benefit have been introduced. People outside the House are more interested in targeting support on children, which is the Government's priority, rather than trying to make spurious party political capital out of the small sums that were involved in the married couples allowance.

Mr. Edward Davey: The new clause is interesting not because it would introduce a married couples allowance, but because it would change the procedures of the House. We normally scrutinise tax provisions through primary legislation, such as the Finance Bill. However, under the new clause, we are asked to give the Treasury the power to vary or change income tax allowances by regulation, rather than by primary legislation. That is an interesting idea, but I am surprised that the Conservatives have proposed it. They usually want to avoid secondary legislation and prevent Governments from trying to hide stealthy tax changes in statutory instruments.

Mr. David Ruffley: Has the hon. Gentleman voted for or against any such measures since becoming a Member of Parliament?

Mr. Davey: I do not think that since I have been a Member the House has considered any such new clause, in which it is suggested that the Chancellor should be given the power to increase personal tax allowances. It is a very unusual new clause and I therefore began to wonder whether it represents a way to change the financial procedures of the House. Many right hon. and hon. Members will know that I take a particular interest in such matters because I believe that the House does not do its job properly. The Finance Bill procedure and the estimates and supply procedures are very inadequate.
There are arguments for changing procedures in the way proposed in the new clause. Many hon. Members have already said that this Finance Bill is one of the longest in history and that that does not help the way in which the House scrutinises detailed financial legislation. Today and tomorrow, the House will debate many Government amendments and new clauses but they will not be given the scrutiny that they deserve, given that they involve significant changes. The House has become too used to dealing with detailed tax legislation on the hoof, very quickly and not properly.
It is time that we changed that process, and perhaps the new clause represents a way of doing so. It would certainly reduce the content of future Finance Bills—perhaps Delegated Legislation Committees should deal with more tax legislation. Perhaps there would be proper scrutiny if individual Committees considered each change to tax legislation. That would certainly push the remainder of the Government's tax proposals into other legislation. I hope that such legislation could be debated in draft form, and perhaps Select Committees could take evidence on it.
Such measures could be dealt with in a more leisurely way than the Finance Bill must be proceeded with because of the need to provide the Inland Revenue with statutory


cover for taxes. We should separate that requirement—the need to provide statutory cover for the way the Inland Revenue and Customs and Excise go about their business—from the technical changes that we see in so many different forms in this and many other Finance Bills. There is a need for such reform, but I do not necessarily think that the new clause provides the best way to do it.
I have suggested in previous debates that a small Finance Bill, which would cover the statutory requirements for collecting tax, should follow the Budget and that a tax technicalities Bill, which the House could take several months to pass, could also be introduced and, perhaps, considered by the other place, changing the current process. Such a Bill could be given proper scrutiny. That would be my preferred way to reform our financial procedures, but perhaps the new clause represents another way to do so. Having expressed surprise that the Conservatives tabled the new clause, I do not think it represents a bad route to follow and perhaps we should experiment with it.
Whether the Liberal Democrats would use the power suggested in the new clause would depend on the regulations that were proposed. We might do so if the allowance that the Conservatives, or the then Chancellor of whichever party, proposed under that legislation took proper care of children. As the hon. Member for Edinburgh, North and Leith (Mr. Chisholm) said, the prime need is to ensure that children living in families receive the necessary support. Perhaps the proposal would be as wide as the former married couples allowance package, which recognised that some people who were not married still needed support. As the Chancellor said—indeed, the shadow Chancellor mentioned it too when in government—many people who were not married received the former married couples allowance. Perhaps the Conservative proposal would mimic many of the characteristics of the old system. The Conservatives might want to propose a tax allowance that was paid not only to married couples. However, they have not proposed such a measure so we cannot decide whether we would support it.
Having listened to the hon. Member for Croydon, South (Mr. Ottaway), I am concerned about the motives behind the proposal. A good motive would be to focus on those elderly people on the cusp, who did not retire on whatever the date was, and therefore cannot continue to receive the married couples allowance. If the intention was to focus on their needs and the fact that they had been disadvantaged, that would be a good motive. The Conservatives sometimes suggest that theirs is the only party that supports marriage, but that is not a particularly helpful or mature approach. We should be less partisan and, frankly, less immature when discussing the welfare of families.
If we want to support marriage, there are many things that we could do, such as investing in services like Relate, which try to support and save marriages that may be breaking down. We should think about other ways to support families, perhaps considering how we recognise the role of Churches and other religious institutions in supporting families and marriage. Ideas like those would make a positive contribution to the debate.
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I do not believe that many people marry for tax reasons. Should we suggest that people marry for money? Is that the key message that the House wants to send? People should marry for love, not money. Perhaps the Conservatives are sending the wrong message.

Dawn Primarolo: You old softie.

Mr. Davey: As I am unmarried, my girl friend may not agree with the Paymaster General on that, but I am interested in hearing details of the Conservative proposals. I feel strongly about this matter. I lost my father when I was four. My mother was widowed, and cared for me and my two older brothers. Are the Conservatives saying that my widowed mother should not have benefited from an extra tax allowance? She was not married, and the new clause is not clear. Before the Conservatives get on their high horses about marriage, they need to flesh out their proposals with rather more detail. Would they penalise single parents, such as my widowed mother, rather than ensuring that she could benefit from extra tax allowances? I cannot believe that they would want that, but it sometimes sounds like it.
The new clause might serve some purpose in promoting reforms of our financial procedures. To that extent, the Liberal Democrats have no problem with it; it is time those matters were addressed. In supporting the new clause this evening, however, we will not be saying that we support the Conservative position, because it has not been properly spelled out.

Mr. Geraint Davies: I am pleased to speak briefly about the married couples allowance, partly because my good neighbour, the hon. Member for Croydon, South (Mr. Ottaway), would not allow me to intervene on him.
The new clause is completely incoherent. The hon. Gentleman suggested that the motivation for restoring the married couples allowance was not so much marriage as support for children in stable family relationships. Of course, the married couples allowance is not available to stable couples with children. It is available to married couples, often without children, or to single parents who are unmarried. That is completely inconsistent.

Mr. Ruffley: Will the hon. Gentleman give way?

Mr. Davies: In a moment.
The idea behind the allowance was support of children in marriage because, when it was introduced, the majority of those who had children were married. Relationships have changed, and many children are born out of wedlock. We must be even-handed about fiscal management, although I accept that, as the hon. Member for Kingston and Surbiton (Mr. Davey) said, we ought to think of ways to encourage stable relationships and marriage.

Mr. Ruffley: rose—

Mr. Davies: I will give way in a moment.
The most important way to do that would be to provide the economic well-being and independence that would keep couples together. Break-ups are often motivated by economic despair. The Government have brought 1


million children out of poverty and away from the legacy of despair and family destruction inherited from the rag bag opposite—talking of which, I will now take the hon. Gentleman's intervention.

Mr. Ruffley: I thank the hon. Gentleman for giving way in his typically graceless way. He said earlier that stable couples who were not married but had children received the married couples allowance. Would he like to correct himself? He should know that the additional personal allowance is what non-0married stable couples with children receive.

Mr. Davies: The hon. Gentleman's hearing seems to have failed him. He may check Hansard to find that I said that people in stable relationships with children are not eligible for the married couples allowance. That was one reason why we got rid of it. To be fair, however, I should make it clear that it was being gradually phased out by the Tories—which merely exposes their opportunist cynicism tonight. They are offering an off-the-cuff, uncosted proposal that does not mention the corollary of the abolition of the children's tax allowance. The policy is entirely un-thought-out and intended merely to provide an electoral opportunity, as the hon. Member for Croydon, South revealed at the end of his speech.

Mr. Oliver Letwin: Will the hon. Gentleman give way?

Mr. Davies: Not for a moment.
We appear to be talking about electoral bribery. That is extremely unfortunate. The Tory measure would cost £1.4 billion in 2000–01 and £1.85 billion the next year, and the cost would continue to rise. It is another example of the kind of expenditure cuts that we would face under a Conservative Administration. We have had a wider debate this afternoon, and the £2 billion or £3 billion that they propose to spend over two years would be taken away from the health service, the education system or other vital services for people in need. The money would be taken away from children to pay for tax cuts for the most well off—couples without children in which both partners earn. That would be quite wrong.
The married couples allowance was being phased out by the previous Administration, but the Tories have suggested that we should reintroduce it. Those who hear our debate will realise that the Labour Administration have lifted 1 million children out of poverty, have put 1 million more people in work and have provided a record increase in child benefit. I urge all hon. Members to resist this stupid new clause.

Mr. Nicholas Winterton: I am pleased to follow the hon. Member for Croydon, Central (Mr. Davies) who put his case very fairly, even if on odd occasions he indulged in rather vicious comments about what my hon. Friend the Member for Croydon, South (Mr. Ottaway) seeks to do for the Opposition.
I endorse what my hon. Friend said in his excellent presentation. His case would have been stronger, however, if he had apologised to the House and to the people of this country for the fact that the Conservative party began this process when we were in government. At the time, a number of us criticised reduction of the

married couples allowance. Like my hon. Friend, I have no doubt that the marriage of a man and a woman committed to each other in a ceremony that all people take seriously can create the most stable environment for children to grow up in. Problems for society arising from such a registered union are likely to be less than those arising from the situation of single parents.
The hon. Member for Kingston and Surbiton (Mr. Davey) also made a thoughtful speech, but I was surprised to hear him suggest that these matters should be debated and decided in the House of Lords. I should have thought that all matters relating to the amount of taxation levied on an individual or family—I still think that allowances have something to do with taxation—should be decided by the elected Chamber.
Like the hon. Member for Kingston and Surbiton, I am not sure whether the proposal of my hon. Friend the Member for Croydon, South should be decided by statutory instrument—secondary legislation. It is too important for that; it is a matter of serious philosophy. Should we encourage the formal presence of marriage, and because of the benefits that it brings society, should marriage be recognised through the allowance and tax system? I believe so.
I am saddened that the previous Government started the reduction in the married couples allowance. With respect, my hon. Friend's case would have been stronger if he had apologised for that and said that in the light of experience, we realised that we made a mistake. I believe that the people out there whom we represent in this House are prepared to forgive a party when it shows that it realises that it has made a mistake.
I accept the advice of the hon. Member for Kingston and Surbiton about children—their interests are absolutely vital. That does not mean, however, that this is an either/or situation. I believe that we could have both options. We could, where necessary, provide additional assistance for families and single parents with financial difficulties, while also recognising the estate of marriage as making a valuable contribution to the environment in which children grow up. The cost to the state when children do wrong and appear before the courts is likely to be less when children are brought up in a stable marriage.
I share the views of my right hon. Friend the Member for Suffolk, Coastal (Mr. Gummer), who believes that marriage is very precious. I do not believe that marriage is often entered into lightly. The benefits to a civilised, stable society that emanate from marriage are very great indeed.

Mr. David Taylor: I am sure that many people in the House would agree with the hon. Gentleman—not least the hon. Member for Congleton (Mrs. Winterton). However, some £190 a year is not a strong incentive for an unmarried couple to troop along to the nearest church or registry office. Does the hon. Gentleman really think that many hundreds of thousands of people will change their status because of that tax incentive? I fear not.

Mr. Winterton: My views differ from those of the hon. Gentleman. I believe that the country benefits from children being brought up within a stable married relationship, and that the cost to Government and society is likely to be much less when that is the case. I regret that the previous Government started the reduction in the


married couples allowance. I would have preferred the allowance to have been much higher than it was. However, I accept that there might be a contrary view.
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As the hon. Gentleman said, I am married to my hon. Friend the Member for Congleton (Mrs. Winterton). She carries my name, so our outlook on these matters is very traditional, and there is nothing wrong in that. She shares my view that in a married family relationship, whether the husband and wife are married in a registry office or in a church—although I prefer the church service, as it is more solemn—the saving to society is greater than the total cost to the Exchequer of the married couples allowance, even at its original level before the previous Conservative and Unionist Government reduced it.
I regret that the present Government have gone the whole hog and abolished the allowance. What they have replaced it with is less beneficial, although I appreciate that they have sought to target assistance on those whom they perceive as having the greatest need. However, I think that the principle spelled out by my hon. Friend the Member for Croydon, South is sound. I am delighted that we have learned from our mistakes in our previous period in office. The allowance means a great deal to people, and has a significance far greater than its cost to the Exchequer. Therefore, I strongly support the new clause.

Mr. Ruffley: I am delighted to support the new clause. I do so for one simple reason—I believe that the family is an important part of the fabric of civil society, and needs to be supported and recognised in the British tax system.
I was interested to hear the contributions from Labour Members. The one word that they did not use was "extremist". This is obviously an example of a U-turn, because on 16 April the Chief Secretary to the Treasury described Conservative proposals for recognising marriage in the tax system as "extremist". What folly that turned out to be.
It was no accident, in my view, that in the leaked memorandum this week, of which we have heard so much, the Prime Minister described his policy on the family as weak. He was worried that the Government were looking weak on the family, and were hopeless at developing sensible policies to support the family.
The new clause would go some way towards helping the Prime Minister out. Were the Government to adopt it, the Prime Minister would be able to demonstrate beyond peradventure that he believes that the family is worth supporting. He would be able to use the simple and direct mechanism described in the new clause.

Mr. Christopher Leslie: Does the hon. Gentleman agree with the hon. Member for Macclesfield (Mr. Winterton), who has a high regard for parliamentary and legislative procedures, that it would be incorrect to introduce these measures through statutory instruments and orders? Can he justify why, under new clause 6, such changes would be made by order rather than in primary legislation?

Mr. Ruffley: The answer to the hon. Gentleman's question should be clear to him; I am rather surprised that

he bothered to ask it. He should scrutinise the proceedings of some of the Standing Committees on which I have had the pleasure, and sometimes the misfortune, to serve. Treasury orders of this kind are often to be found; our proposal is not especially unusual. I was rather surprised by the perplexity of the hon. Member for Kingston and Surbiton (Mr. Davey) about that. It is a device that those on the Treasury Bench have used on many occasions.
To return to my original point, the Prime Minister has said that his Government's policy is weak on the family, and unconvincing and unappealing to the people of this country. He is quite right there. The new clause would remedy the defect in current Government policy.
Before Labour Members get to their feet in a desperate attempt to win brownie points with the Treasury Whip, let me tackle head on the point made by my hon. Friend the Member for Macclesfield (Mr. Winterton) about the reductions in the value of the married couples allowance under the previous Government. I remember it well. In the March 1993 Budget, the Chancellor, Norman Lamont—Lord Lamont as he is now—set in train a two-tranche reduction in the married couples allowance from the basic rate of 25 per cent. to 15 per cent. That is a matter of record. However, the then Conservative Government did not go on to abolish the allowance, as this Government have.
Why was the reduction in the MCA so necessary? It was an important part of deficit reduction. [Laughter.] The guffaws from the glove puppets on the Government Benches would lead one to think that they considered deficit reduction a bad thing—but it is a good thing. The Chancellor celebrated it today, and he is the proud heir and inheritor of the previous Government's sensible fiscal policies.
What was the attitude of today's Ministers to the sensible but limited deficit-reducing measures in 1993, which stopped at 15 per cent? The present Government have gone for the next 15 per cent. What was the record of the Paymaster General on the 1993 Finance Bill? I hope that she will tell us when she winds up.
I remind the House of the importance of the new clause in terms of the tax policy of the Conservative party. My right hon. Friend the Leader of the Opposition made it clear this week that the next Conservative Government will reintroduce recognition of marriage in the tax system. The Government have abolished it, and so have no claim to be the defenders of married couples and families.
One issue has angered pensioners in my constituency. My mailbag is full of letters from them—I should be surprised if Labour Members had not received similar letters—about a decision in the March 1999 Budget. The Chancellor gave the distinct impression that pensioners would continue to receive the married couples allowance. However, we had to find in the small print one thing that he did not spell out—that pensioners reaching the age of 65 after April 2000 would not get any married couples allowance. That meant that those individuals found themselves some £500 worse off when that 1999 Budget tax change took effect.
The Conservatives were not alone in being intelligent enough to read the small print. Help the Aged was on


to the matter fairly rapidly. Mr. Mervyn Kohler of that organisation described the pernicious effect of the change on pensioners who reach the age of 65 this fiscal year:
600,000 people reach retirement age in a typical year … only a third of them exceed their personal allowances…. There will be quite a lot of rather cross people about when they realise they are affected, having planned on receiving the existing allowances.
Whereas the Chancellor has been saying that he has lifted many older people out of paying taxes in previous Budgets, this could have the effect of putting many of them back into paying tax. This is very unfair because it is so arbitrary and it will squeeze the older generation. They are going to take a bit of a hammering.
Many of my pensioner constituents who were 63 or 64 before the 1999 Budget change now realise that they will not get the £500 that they had counted on getting when they turned 65 this fiscal year. I have had many letters to that effect.

Mr. Geraint Davies: Will the hon. Gentleman give way?

Mr. Ruffley: No, I will not give way to the hon. Gentleman. I may reconsider if he has something sensible to say. He rarely has.
Mr. Mervyn Kohler said that pensioners would take a hammering, and many of. my pensioner constituents felt that they had been hammered by the Government, especially by the abolition of the married couples allowance. They had no warning or notice of the change, as Lady Greengross, the director general of Age Concern, said when she described how pensioners in their early 60s would have woken one morning to find out what was in the 1999 Budget.
Lady Greengross did say:
We welcome the fact that those already 65 will not lose the allowance…,
but it was a rather limited welcome, as she went on to make it clear that she wanted the measure to be phased in for people who will not get the allowance when they reach 65 this year. The argument for some transitional relief for people turning 60 was rather callously ignored by the Chancellor. He has not rethought things, and as a result many pensioners in many constituencies are very aggrieved.

Mr. Nicholas Winterton: One of my great concerns about what happened to people in the situation described by my hon. Friend is that the change, which they had not anticipated, occurred too late to allow them to make alternative financial arrangements to ensure that the quality and standard of their lives were not adversely affected. That is why I support my hon. Friend in his contention about transitional arrangements.

Mr. Ruffley: My hon. Friend has made my day. I am supported by Help the Aged, by Age Concern, and now by him. I could want for nothing more.
Labour Members have made no attempt to answer those important points in the debate. Age Concern and Help the Aged say that the change is a problem, and Labour Members who read their mail agree. It ill behoves them to smirk and grin and ignore the point. The Paymaster General owes the House an answer when she winds up.

Mr. Geraint Davies: Will the hon. Gentleman accept that any change in the tax system will be unplanned, in

the sense that before the Chancellor stands at the Dispatch Box, no one knows what he will say? People plan for the world to go on as before. Does not the hon. Gentleman therefore agree that his is a rather silly argument?

Mr. Ruffley: I am sure that the hon. Gentleman will be applauded in his constituency by Age Concern and Help the Aged when he refers to their arguments as silly, misplaced or misguided. Old people are vulnerable. They do not have large incomes, and we believe that they are a special case, as do Help the Aged and Age Concern.

Mr. David Taylor: Will the hon. Gentleman cast his mind back to 1980, when he might still have been in primary school? Then, the Administration of the lady now known as Lady Thatcher perpetrated one of the meanest acts of their 18 years in office. They broke the link between pensions and pay in the economy. Does the hon. Gentleman think that that showed due regard to a vulnerable group?

Mr. Ruffley: This Labour Government have never said that they would reintroduce that link. There is a good reason for that. Baroness Hollis, the Under-Secretary of State for Social Security in the House of Lords, has said that if the link were restored now it would cost £25 billion by 2025. Not even this profligate Chancellor would be able to find that sort of money, which is why the Government have not decided to restore the link. The hon. Gentleman should know his party policy before he intervenes in that way.
Non-pensioners have also lost their married couples allowance to the value of some £200 a year plus. Added to the other stealth taxes—the petrol tax, the personal pension tax, and increases in council tax—the net result is that the average hard-working family is £670 worse off. That is the tax bill they face. The abolition of the married couples allowance is part of that £670. It is for that reason, and the other reasons that I have adduced, that I strongly support new clause 6, and I urge hon. Members to support it.

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Mr. Desmond Swayne: I shall not detain the House long, because the matter has been well aired by my hon. Friends and by Labour Members. Strangely enough, I share the view of the hon. Member for North-West Leicestershire (Mr. Taylor) that changes in the married couples allowance such as that made in the last Budget are unlikely to have any measurable effect on the incentive to marry. Indeed, it would pose profound questions about the nature of marriage if they were an incentive.
Nevertheless, I share the view expressed by my hon. Friend the Member for Macclesfield (Mr. Winterton). This matter has a symbolic importance that rises well above the issue of how much the allowance may be worth.
The attraction of the new clause is the speedy remedy that it provides. Previously, married people enjoyed a tax allowance that they no longer enjoy. In other words, there is now a tax on marriage.

Mr. David Taylor: Will the hon. Gentleman give way?

Mr. Swayne: No, I will not give way. The matter is fairly straightforward.

Mr. Taylor: On that very point.

Mr. Swayne: No, not on that point. I will not give way.

Mr. Taylor: rose—

Mr. Deputy Speaker: Order. The hon. Gentleman has said that he is not giving way.

Mr. Swayne: I want to draw my remarks to a conclusion. For those of us who disapprove of the new penalty on marriage, the clause would provide a speedy remedy. It is obvious that the Government will shortly be sent packing, and my right hon. and hon. Friends on the Front Bench will take their place. They will readily use this new clause to remedy the matter.

Dawn Primarolo: Those who watch and listen to the debates in the House will be greatly saddened by some of the contributions that have been made this evening. Value judgments have been made on those who choose to marry, whether in a civil ceremony or a church service, and on those couples who make a lifelong commitment to each other as partners, but who do not choose to marry. The debate is not about whether we are in favour of marriage or a commitment of individuals to each other: it is about a tax relief, and it needs to be set in that context.
I applaud the honesty of the hon. Member for Macclesfield (Mr. Winterton) in saying that he opposed everything that the Conservative Government did when they were in power—[Interruption.] The hon. Gentleman is too keen; I was not going to make a sweeping claim on his behalf. He opposed the Conservative Government when they reduced the married couples allowance. In all honesty, I cannot remember how he voted on that issue. When the Conservative Government were in power, the number of children living in families in poverty rose to 3 million; that is what his party presided over. It now tells us that it is committed to marriage and to stable relationships, whether in a legal or a church ceremony.

Mr. Nicholas Winterton: I want to clarify my position. I am sure that the Paymaster General will accept that during my short speech, I said that additional steps could be taken if it were necessary to help children in families in difficult financial circumstances. I wanted both the married couples allowance and, if necessary, additional help for children from families in difficult financial circumstances.

Dawn Primarolo: I noted the hon. Gentleman's bid for more money, and I shall come back to that. He is quite right; he acknowledged that point.
I want to put it clearly on the record that in my opinion, a commitment to a stable relationship or a marriage is reward in its own right, as the hon. Member for Kingston and Surbiton (Mr. Davey) said. The idea that a financial incentive in the tax system would encourage people to many and would provide a good, sound basis for a stable

relationship shows little respect for the institution of marriage, because it does not fully recognise the commitment that is made.

Mr. Burnett: Will the hon. Lady give way?

Dawn Primarolo: I shall give way, but if the hon. Gentleman will allow me, I shall then explain why this allowance has never been about marriage: it is about taxable capacity.

Mr. Burnett: I sincerely hope that the Paymaster General will assure the House that this measure is not a precursor to the abolition of inter-spouse exemption for inheritance tax purposes, which was established by the Labour party when it introduced capital transfer tax in the Finance (No. 2) Act 1975.

Dawn Primarolo: The hon. Gentleman is ever vigilant about the Government's possible future plans. I shall not stray beyond the new clause before us.
We need to be reminded that the origin of the married couples allowance was the married man's allowance, which was meant to recognise a reduced taxable capacity when a man acquired a wife to support. Marriage is no longer the point at which taxable capacity is reduced; many couples continue to work. Taxable capacity is now reduced when children arrive and one partner reduces or gives up work, or the marriage or partnership faces the challenge of funding child care. It is right that the Government should shift support to the point at which that occurs, and should concentrate on the existence of children in that family unit. That is what the children's tax credit does. It is right to support the family with a child whatever their circumstances. It is important to invest in children, and to improve their life chances.
We need to provide equivalent relief to one-parent families for many reasons. The parent may be bereaved or may have been deserted by the partner. A child needs to be fed whatever the circumstances of his or her conception. The old married couples allowance recognised that, as did the additional personal allowance. The children's tax credit recognises unmarried couples, as did the additional personal allowance introduced by the Conservative party. This is not about political correctness: it is a practical matter of preventing unmarried couples from getting more generous treatment than married couples. That can be avoided by using tapers and by preventing them from having two credits.
The rules for additional personal allowance introduced by the Conservatives in 1988 covered exactly the same point as is now covered by the children's tax credit. The argument that this proposal is a departure in our tax rules from recognising only married couples to recognising unmarried couples is spurious.

Mr. Ottaway: The Minister annunciated the benefits of the children's tax credit. Will she acknowledge that, in calculating that credit, housing benefit and council tax benefit are deducted?

Dawn Primarolo: The children's tax credit is a tax relief and it is paid within the tax system. The hon. Gentleman is confusing it with working families tax credit.

Mr. Ottaway: I am not confused in the least. It is a fact that a lone parent working for 12 hours at £15 an


hour, which is a perfectly normal situation, faces a loss of £5.33 in housing benefit and £1.70 in council tax benefit when he or she receives £8.50 of children's tax credit. In other words, that person is only £1.27 a week better off, not £8.50, as the Minister claims.

Dawn Primarolo: I think that the hon. Gentleman is referring to the position when the couple have an increased income because the amount of tax has gone down and there is a taper on any housing or council tax benefit. If they are on those benefits, they will have an income that is low enough to qualify them for working families tax credit, so the changes in the premiums in that credit will address those points.
Conservative Members who were in the previous Government have selective amnesia about how much they reduced the value of the married couples allowance. For instance, in 1994–95, they reduced it by £83.25; in 1995–96, by £83.75; and in 1996–97, by £85.25. They removed it from the position in which it affected whether reliefs were given.
Under the previous Administration, the married couples allowance was cut first to 20 per cent. and then to 15 per cent. Some taxpayers began to pay an extra £8 a week as a result of those changes. The right hon. Member for Kensington and Chelsea (Mr. Fortino), who was then Chief Secretary, said that the married couples allowance was the "most anomalous of allowances" with "no on-going justification".
We agree with the right hon. Gentleman, although he apparently no longer agrees with himself. We have abolished the married couples allowance for under-65s from 6 April 2000, not because we do not support marriage, but because the allowance was not supporting marriage. When a couple can get twice the tax relief for splitting up that they could get for staying together, Opposition Members must explain how that is support for marriage.
We have a better approach. We are investing in our future by providing more financial support for all families with children. Families face their greatest financial pressure when they have children. We have made record increases in child benefit—35 per cent.—which the Conservative party froze. We have introduced the working families tax credit to support hard-working families. We have increased the credits by another £4.35 a week from last month. We have increased income support for the poorest families. The working families tax credit will give families more money, and over the lifetime of this Parliament, about 1.2 million children will be lifted out of poverty.
The hon. Member for Croydon, South (Mr. Ottaway) spoke about the claim form. The form is clear and expressed in neutral terms to cover both married and unmarried couples. The children's tax credit covers both, to ensure that married couples do not get less relief. It was the Conservative party that introduced, in the additional personal allowance, the rules to cover unmarried couples.
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The hon. Gentleman went on to say that the form is overkill. The Inland Revenue does not hold details of children in families, so we needed to send the forms out to get to the people who had received married couples allowance and the additional personal allowance and who

might be eligible. We wanted to ensure that they understood their entitlement and were alerted that they should claim it.
The hon. Gentleman said that the children's tax credit was unfair to single-earner families. That is the effect of independent taxation. Single-earner couples will tend to pay more than two-earner couples on the same family income, because one uses one set of allowances and rate bands. We are trying to address that anomaly, which the Conservative party helped to create, in the integrated child credit.
Now Conservative Members say that the taper is unfair, but we think that it is right that we should get the maximum benefit to those on the lowest incomes. They then say that 100,000 people will pay higher rate tax as a result of the changes. That is simply not true. Nobody will be brought into a higher rate of tax as a result of the abolition of the married couples allowance—unlike the 200,000 people who became higher rate taxpayers when the Conservative party cut the value of the married couples allowance to 20 per cent. in 1994–95.
The hon. Member for Croydon, South says that the benefits of the children's tax credit do not get through to the families that really need them, such as those on working families tax credit. Again, he is wrong. It is not true. He ignores the fact that the child rate in the working families tax credit was raised in October 1999 to take account of the interaction between that credit and the children's tax credit, and the child credit for under-16s was raised again, by £4.35, from June 2000, on top of the indexation from April 2000. It is simply wrong to create the illusion that the money is not going to those who really need it.
The new clause asks for rather odd things. It asks for powers to make regulations. Why does the Chancellor need powers to make regulations about tax allowances when he has at least an annual opportunity, in the Finance Bill, to make any changes that he wants, with the proper scrutiny of the House? In any case, what is to stop the Chancellor introducing another Finance Bill in a year? The Chancellor already has the power to make regulations.
Conservative Members have revealed how out of touch and confused they are about how people organise their lives and bring up their children. I urge my hon. Friends to reject the new clause and ensure that the Government's sound policies for tackling child poverty, directing resources to the families who need it most, can continue.

Mr. Ottaway: We tabled the new clause not for those reasons, but because of the deception being practised on the people of this country when the Government say that the children's tax credit replaces the married couples allowance. It does not replace that allowance, and millions of people will not receive it. Many will suffer financial loss as a result of the Government's proposals.
For the Minister to say that the poorest people in our society are getting the entire benefit of the children's tax credit is plain misleading. Housing and council tax benefit have to be taken into account. The poorest people in our society will not get the funding that she says they will get. That is why we want to divide the House.

Question put, That the clause be read a Second time:—

The House divided: Ayes 157, Noes 289.

Division No. 276]
[8.19 pm

AYES


Allan, Richard
Horam, John


Arness, David
Howard, Rt Hon Michael


Arbuthnot, Rt Hon James
Howarth, Gerald (Aldershot)


Atkinson, Peter (Hexham)
Jack, Rt Hon Michael


Baldry, Tony
Jackson, Robert (Wantage)


Beggs, Roy
Jenkin, Bernard


Beith, Rt Hon A J
Keetch, Paul


Bell, Martin (Tatton)
Key, Robert


Bercow, John
King, Rt Hon Tom (Bridgwater)


Beresford, Sir Paul
Kirkbride, Miss Julie


Body, Sir Richard
Kirkwood, Archy


Bottomley, Rt Hon Mrs Virginia
Laing, Mrs Eleanor


Brake, Tom
Lait, Mrs Jacqui


Brazier, Julian
Letwin, Oliver


Breed, Colin
Lewis, Dr Julian (New Forest E)


Brooke, Rt Hon Peter
Lidington, David


Bruce, Ian (S Dorset)
Lilley, Rt Hon Peter


Bruce, Malcolm (Gordon)
Livsey, Richard


Burnett, John
Lloyd, Rt Hon Sir Peter (Fareham)


Burns, Simon
Loughton, Tim


Burstow, Paul
Luff, Peter


Butterfill, John
MacGregor, Rt Hon John


Cash, William
McIntosh, Miss Anne


Chapman, Sir Sydney (Chipping Barnet)
MacKay, Rt Hon Andrew



Maclean, Rt Hon David


Chope, Christopher
Maclennan, Rt Hon Robert


Clappison, James
McLoughlin, Patrick


Clifton-Brown, Geoffrey
Madel, Sir David


Collins, Tim
Major, Rt Hon John


Cormack, Sir Patrick
Malins, Humfrey


Cotter, Brian
Maples, John


Cran, James
Mawhinney, Rt Hon Sir Brian


Curry, Rt Hon David
May, Mrs Theresa


Davey, Edward (Kingston)
Morgan, Alasdair (Galloway)


Davies, Quentin (Grantham)
Norman, Archie


Davis, Rt Hon David (Haltemprice)
O'Brien, Stephen (Eddisbury)


Donaldson, Jeffrey
Öpik, Lembit


Dorrell, Rt Hon Stephen
Ottaway, Richard


Evans, Nigel
Paice, James


Ewing, Mrs Margaret
Paterson, Owen


Faber, David
Prior, David


Fabricant, Michael
Randall, John


Fallon, Michael
Rendel, David


Fearn, Ronnie
Robathan, Andrew


Flight, Howard
Robertson, Laurence


Forth, Rt Hon Eric
Roe, Mrs Marion (Broxbourne)


Foster, Don (Bath)
Ross, William (E Lond'y)


Fraser, Christopher
Rowe, Andrew (Faversham)


Garnier, Edward
Ruffley, David


George, Andrew (St lves)
Russell, Bob (Colchester)


Gibb, Nick
St Aubyn, Nick


Gill, Christopher
Sayeed, Jonathan


Gillan, Mrs Cheryl
Shepherd, Richard


Gorman, Mrs Teresa
Smith, Sir Robert (W Ab'd'ns)


Gorrie, Donald
Soames, Nicholas


Green, Damian
Spelman, Mrs Caroline


Greenway, John
Spicer, Sir Michael


Grieve, Dominic
Spring, Richard


Hague, Rt Hon William
Stanley, Rt Hon Sir John


Hamilton, Rt Hon Sir Archie
Steen, Anthony


Hammond, Philip
Streeter, Gary


Hancock, Mike
Stunell, Andrew


Harvey, Nick
Swayne, Desmond


Hawkins, Nick
Syms, Robert


Hayes, John
Tapsell, Sir Peter


Heald, Oliver
Taylor, Ian (Esher & Walton)


Heath, David (Somerton & Frome)
Taylor, John M (Solihull)


Heathcoat-Amory, Rt Hon David
Taylor, Matthew (Truro)


Hogg, Rt Hon Douglas
Taylor, Sir Teddy





Thomas, Simon (Ceredigion)
Wilkinson, John


Tonge, Dr Jenny
Willetts, David


Townend, John
Willis, Phil


Tredinnick, David
Wilshire, David


Trend, Michael
Winterton, Mrs Ann (Congleton)


Tyrie, Andrew
Winterton, Nicholas (Macclesfield)


Viggers, Peter
Yeo, Tim


Waterson, Nigel
Young, Rt Hon Sir George


Webb, Steve



Whitney, Sir Raymond
Tellers for the Ayes:


Whittingdale, John
Mr. Stephen Day and


Wigley, Rt Hon Dafydd
Mr. Keith Simpson.



NOES


Ainger, Nick
Crausby, David


Ainsworth, Robert (Cov'try NE)
Cryer, Mrs Ann (Keighley)


Alexander, Douglas
Cryer, John (Hornchurch)


Allen, Graham
Cunningham, Jim (Cov'try S)


Anderson, Janet (Rossendale)
Curtis-Thomas, Mrs Claire


Ashton, Joe
Darling, Rt Hon Alistair


Atkins, Charlotte
Darvill, Keith


Austin, John
Davey, Valerie (Bristol W)


Banks, Tony
Davidson, Ian


Barnes, Harry
Davies, Rt Hon Denzil (Llanelli)


Barron, Kevin
Davies, Geraint (Croydon C)


Battle, John
Davis, Rt Hon Terry (B'ham Hodge H)


Bayley, Hugh



Beckett, Rt Hon Mrs Margaret
Dawson, Hilton


Benn, Hilary (Leeds C)
Dean, Mrs Janet


Benn, Rt Hon Tony (Chesterfield)
Dismore, Andrew


Benton, Joe
Dobbin, Jim


Bermingham, Gerald
Doran, Frank


Berry, Roger
Drew, David


Betts, Clive
Eagle, Angela (Wallasey)


Blackman, Liz
Eagle, Maria (L'pool Garston)


Blizzard, Bob
Edwards, Huw


Boateng, Rt Hon Paul
Ellman, Mrs Louise


Borrow, David
Field, Rt Hon Frank


Bradley, Keith (Withington)
Fisher, Mark


Bradley, Peter (The Wrekin)
Fitzpatrick, Jim


Bradshaw, Ben
Foster, Michael Jabez (Hastings)


Brinton, Mrs Helen
Foster, Michael J (Worcester)


Brown, Russell (Dumfries)
Fyfe, Maria


Browne, Desmond
Gardiner, Barry


Buck, Ms Karen
Gerrard, Neil


Burden, Richard
Gibson, Dr Ian


Burgon, Colin
Gilroy, Mrs Linda


Butler, Mrs Christine
Godsiff, Roger


Campbell, Mrs Anne (C'bridge)
Goggins, Paul


Campbell, Ronnie (Blyth V)
Golding, Mrs Llin


Campbell-Savours, Dale
Gordon, Mrs Eileen


Caplin, Ivor
Griffiths, Jane (Reading E)


Casale, Roger
Griffiths, Nigel (Edinburgh S)


Caton, Martin
Grocott, Bruce


Cawsey, Ian
Grogan, John


Chapman, Ben (Wirral S)
Gunnell, John


Chaytor, David
Hall, Mike (Weaver Vale)


Chisholm, Malcolm
Hall, Patrick (Bedford)


Clapham, Michael
Hamilton, Fabian (Leeds NE)


Clark, Rt Hon Dr David (S Shields)
Hanson, David


Clark, Paul (Gillingham)
Harman, Rt Hon Ms Harriet


Clarke, Eric (Midlothian)
Heal, Mrs Sylvia


Clarke, Rt Hon Tom (Coatbridge)
Healey, John


Clelland, David
Henderson, Doug (Newcastle N)


Clwyd, Ann
Henderson, Ivan (Harwich)


Coaker, Vernon
Hepburn, Stephen


Coffey, Ms Ann
Heppell, John


Cohen, Harry
Hesford, Stephen


Coleman, Iain
Hewitt, Ms Patricia


Colman, Tony
Hinchliffe, David


Connarty, Michael
Home Robertson, John


Corbett, Robin
Hood, Jimmy


Corbyn, Jeremy
Hopkins, Kelvin


Cousins, Jim
Howells, Dr Kim


Cox, Tom
Hoyle, Lindsay


Cranston, Ross
Hughes, Ms Beverley (Stretford)






Hughes, Kevin (Doncaster N)
Murphy, Rt Hon Paul (Torfaen)


Humble, Mrs Joan
O'Brien, Bill (Normanton)


Hurst, Alan
O'Hara, Eddie


Hutton, John
Olner, Bill


Iddon, Dr Brian
O'Neill, Martin


Jackson, Ms Glenda (Hampstead)
Organ, Mrs Diana


Jackson, Helen (Hillsborough)
Osborne, Ms Sandra


Jenkins, Brian
Palmer, Dr Nick


Johnson, Miss Melanie (Welwyn Hatfield)
Pearson, Ian



Pickthall, Colin


Jones, Rt Hon Barry (Alyn)
Plaskitt, James


Jones, Mrs Fiona (Newark)
Pollard, Kerry


Jones, Helen (Warrington N)
Pond, Chris


Jones, Ms Jenny (Wolverh'ton SW)
Pope, Greg



Pound, Stephen


Jones, Jon Owen (Cardiff C)
Powell, Sir Raymond


Jones, Dr Lynne (Selly Oak)
Prentice, Ms Bridget (Lewisham E)


Jones, Martyn (Clwyd S)
Prentice, Gordon (Pendle)


Keeble, Ms Sally
Primarolo, Dawn


Keen, Alan (Feltham & Heston)
Prosser, Gwyn


Keen, Ann (Brentford & Isleworth)
Purchase, Ken


Kennedy, Jane (Wavertree)
Quin, Rt Hon Ms Joyce


Khabra, Piara S
Quinn, Lawrie


Kidney, David
Radice, Rt Hon Giles


Kilfoyle, Peter
Rammell, Bill


King, Andy (Rugby & Kenilworth)
Rapson, Syd


Kumar, Dr Ashok
Reid, Rt Hon Dr John (Hamilton N)


Ladyman, Dr Stephen
Rooker, Rt Hon Jeff


Lammy, David
Rooney, Terry


Lawrence, Mrs Jackie
Rowlands, Ted


Laxton, Bob
Roy, Frank


Lepper, David
Ruane, Chris


Leslie, Christopher
Ruddock, Joan


Levitt, Tom
Russell, Ms Christine (Chester)


Lewis, Ivan (Bury S)
Salter, Martin


Lewis, Terry (Worsley)
Savidge, Malcolm


Liddell, Rt Hon Mrs Helen
Sawford, Phil


Linton, Martin
Sedgemore, Brian


Lloyd, Tony (Manchester C)
Shaw, Jonathan


Lock, David
Sheerman, Barry


McAllion, John
Sheldon, Rt Hon Robert


McAvoy, Thomas
Shipley, Ms Debra


McCabe, Steve
Short, Rt Hon Clare


McCafferty, Ms Chris
Simpson, Alan (Nottingham S)


McCartney, Rt Hon Ian (Makerfield)
Skinner, Dennis



Smith, Miss Geraldine (Morecambe & Lunesdale)


McDonagh, Siobhain



McDonnell, John
Smith, John (Glamorgan)


McFall, John
Smith, Llew (Blaenau Gwent)


McGuire, Mrs Anne
Snape, Peter


McIsaac, Shona
Soley, Clive


McKenna, Mrs Rosemary
Southworth, Ms Helen


Mackinlay, Andrew
Steinberg, Gerry


McNamara, Kevin
Stevenson, George


McNulty, Tony
Stewart, David (Inverness E)


MacShane, Denis
Stewart, Ian (Eccles)


McWalter, Tony
Stinchcombe, Paul


McWilliam, John
Stoate, Dr Howard


Mahon, Mrs Alice
Strang, Rt Hon Dr Gavin


Marsden, Gordon (Blackpool S)
Stringer, Graham


Marshall, Jim (Leicester S)
Sutcliffe, Gerry


Martlew, Eric
Taylor, Rt Hon Mrs Ann (Dewsbury)


Meacher, Rt Hon Michael



Merron, Gillian
Taylor, David (NW Leics)


Michael, Rt Hon Alun
Temple-Morris, Peter


Michie, Bill (Shef'ld Heeley)
Thomas, Gareth (Clwyd W)


Miller, Andrew
Thomas, Gareth R (Harrow W)


Mitchell, Austin
Timms, Stephen


Moonie, Dr Lewis
Todd, Mark


Moran, Ms Margaret
Trickett, Jon


Morgan, Ms Julie (Cardiff N)
Truswell, Paul


Morley, Elliot
Turner, Dennis (Wolverh'ton SE)


Morris, Rt Hon Sir John (Aberavon)
Turner, Dr Desmond (Kemptown)



Turner, Dr George (NW Norfolk)


Mudie, George
Turner, Neil (Wigan)


Mullin, Chris
Twigg, Derek (Halton)





Tynan, Bill
Winnick, David


Vaz, Keith
Winterton, Ms Rosie (Doncaster C)


Vis, Dr Rudi
Woodward, Shaun


Walley, Ms Joan
Woolas, Phil


Ward, Ms Claire
Worthington, Tony


Wareing, Robert N
Wright, Anthony D (Gt Yarmouth)


Watts, David
Wright, Tony (Cannock)


White, Brian
Wyatt, Derek


Williams, Rt Hon Alan (Swansea W)




Tellers for the Noes:


Williams, Alan W (E Carmarthen)
Mr. Don Touhig and


Williams, Mrs Betty (Conwy)
Mr. Jim Dowd.

Question accordingly negatived.

New Clause 8

PAYE ADMINISTRATION OF RETIREMENT ANNUITY INCOME

'In section 648A Taxes Act 1988, paragraph (1) after the words "approved personal pension scheme", add "or an approved retirement annuity contract within the meaning of section 620 Taxes Act 1988".'.—[Mr. Edward Davey.]

Brought up, and read the First time.

Mr. Edward Davey: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker: With this it will be convenient to discuss the following: Government amendments Nos. 83 and 84.
Amendment No. 145, in schedule 13, page 294, leave out lines 15 and 16.
Amendment No. 146, in page 294, line 18, at end add—
'(3) Subsection (1) shall not prevent the approval of the scheme which contains no requirement to purchase an annuity by a certain age.'.
Government amendments Nos. 85 and 86.

Mr. Davey: This group contains some significant amendments. Government amendments Nos. 83 to 86, which cover pension contributions to pension plans running concurrently, are incredibly important. I believe that the hon. Member for Arundel and South Downs (Mr. Flight) raised the matter in Committee. Amendments Nos. 145 and 146 cover the annuity issue. I do not intend to cover those two important issues. I shall leave them to my hon. Friend the Member for Northavon (Mr. Webb), who is far more eminently qualified than I am to cover them in detail.
I wish to speak to new clause 8, which is more modest. Again, it takes up the issue of unnecessary bureaucracy and the way in which that hits low-income pensioners. It makes a practice that is permitted by the Inland Revenue into a statutory requirement to help pensioners.
In specific detail, new clause 8 deals with the way in which retirement annuity income is administered. At the moment, tax on retirement annuity income is deducted at source at the basic rate, with a non-taxpayer option for gross payment on submission of form R89. That is different from the way in which other sources of pension income are administered for income tax.
I do not know how familiar tight hon. and hon. Members are with the amazing number of different ways in which different forms of pensioner income are administered for income tax purposes. I am grateful to the


low incomes tax reform group of the Chartered Institute of Taxation for the way in which it has set that out in its paper entitled, "Older people on low incomes. The case for a friendlier tax system." It bears reference to because it shows how complex the administration of income tax has become for pensioners, who often rely on a wide variety of often very small income sources.
Some sources of pensioner income are tax exempt: premium bonds, national savings certificates and, for National Savings bank ordinary accounts, the first £70 of interest. There are sources of pensioner income that are taxable, but paid without tax deducted at source. Those include National Savings bank ordinary accounts where the interest is more than £70, investment accounts, income bonds, capital bonds and pensioners bonds. There is a source of pensioner income that is taxable, but paid with tax deducted at source at 20 per cent: first option bonds.
When we go into the wider general investment market, we see another set of tax administrative arrangements related to pensioner incomes. Personal pensions and occupational pensions are taxable and paid with tax deducted by the pay-as-you-earn code number. Retirement annuities—the subject of the new clause—are taxable and paid with tax deducted at the basic rate of tax, with the non-taxpayer options that I have described. The income element of the return from purchased life annuities is taxed in yet another way: tax is paid and deducted at 20 per cent. The non-taxpayer has the option to ensure that the income is paid gross upon submission of yet another form: R89.
Building society and bank interest is taxable. The tax is paid at 20 per cent. at source. The non-taxpayer can apply to have it paid gross, but he has another form to fill in to do that: R85. United Kingdom company dividends are taxable and paid with a repayable credit of 20 per cent. The taxation on many overseas pensions and interest from overseas deposits is administered in yet another way. They are taxable, but received without tax deduction at source, because it is from an overseas source. I have not even begun to mention PEPs, TESSAs and ISAs, which we know are not taxable. We see from that long litany of examples what a complicated tax administrative system faces the ordinary pensioner.
The result of all that is that pensioners often pay too much tax, because they are faced with forms that they do not understand, so they do not apply to have the income and interest paid gross, and with a system that is so complex and such a minefield that they are made anxious by it. That complexity does not serve the Inland Revenue. It increases its administration costs, so the Government do not win by that minefield.
Let us look at different financial products for pensioners, be they ordinary pensions or other types. The administrative arrangements are so different, with some tax taken at source, some not, some taken at different rates and some with non-taxpayer options for payment gross. That complexity reduces transparency in comparing the returns from different financial products. Each marketing of each different product must try to explain the different tax arrangements to pensioners.
There is absolutely no reason for the system that we have. It has just grown. It has been given to us by history. It is time that it was reformed. New clause 8 is a small

step in reforming that over-complex system. It relates just to the tax on retirement annuity income. It seeks to enshrine in statute law and to make mandatory something that the Inland Revenue already permits. It ensures that retirement annuity income can be paid through the PAYE system, so that the correct amount is taken and so that pensioners who do not owe any income tax on that retirement annuity income do not have to fill in forms. It ensures that they do not have to pay tax that is not due to the Exchequer. It is simple.
I am delighted that the Government were relatively positive when I raised the matter. In response, the Paymaster General said that the Government were
in discussions with the industry on how to simplify the system and make it much more responsive to pensioners.—[Official Report, 9 June 2000; Vol. 351, c. 618.]
I was grateful for that reply. I hope that those discussions with the industry have taken place, or are soon to take place, and that soon we can get a bit more logic in the system, so that poor pensioners—we are talking about non-income tax paying pensioners; some of the poorest pensioners—do not pay tax when they are not supposed to.
I hope that the Government can make that relatively simple administrative change as a first step to reforming completely that bizarre aspect of the income tax system. If they do, pensioners throughout the country will applaud them.

Mr. Flight: I believe that the debate on this group is one of the more important this evening. It covers several territories related to pension arrangements.
I entirely support new clause 8, which addresses a practical issue. I cannot see why there should be any objections to it. I greatly welcome Government amendments Nos. 83, 84, 85 and 86, which, as kindly acknowledged, broadly address the issue of concurrent membership, which we discussed in Committee. I think that there will be some practical problems in establishing the demarcation level at £30,000. Although that figure will cause some injustices, at least it is a practical solution to the problem. It will be interesting to see how it works out, especially in relation to concurrent membership of final-salary occupational pension schemes and stakeholder schemes—which had previously been deemed not to be practical.
I shall, however, use my time to speak to amendments Nos. 145 and 146. Amendment No. 145 deals with a straightforward issue. I confess that, when first trying to get my brain round schedule 13, I had not taken in the fact that paragraph 9 will remove section 633(2), so that a pension scheme cannot provide insurance covering contributions that have not been made because of a member's illness or temporary redundancy. There will, however, be a grandfather provision for those who already have such arrangements.
I do not think that a case has ever been made why such a provision should not be part of the new tax rules covering stakeholder and other personal pensions. The removal of such a provision seems to be a bad idea. Surely it is thoroughly desirable that people have insurance to ensure that they are able to accumulate an adequate pension. I therefore ask the Minister at the very least to explain the logic behind removing the provision. Amendment No. 145 deletes that change.
The major chestnut to crack is the issue of ending the obligation to buy an annuity by the age of 75. The Government seem to be burying their head in the sand. The official Opposition's policy on the issue has been clear for the past two years—to abolish the obligation subject to individuals having in place pension arrangements that will deliver a pension ensuring that they will not qualify for the pension guarantee. Therefore, we suggest—as the report commissioned by the Association of Unit Trusts and Investment Funds suggested—that the obligation should be abolished, subject to lesser annuities being taken out, when required, to deliver a pension up to a set level.
Ministers must be aware that millions of people are concerned about the issue, and that we are living in an age in which there is an explosion in demand for money purchase pensions. Additionally, the Government's stakeholder measures will have a major impact in increasing the number of companies that end final-salary schemes and create money purchase schemes.
In many ways, schedule 13 is extremely useful in providing a tax framework that encompasses both group personal pensions and occupational money purchase pensions. Many companies and their consultants have been waiting to see what the final stakeholder arrangements and obligations would be before taking the decision.

Mr. Steve Webb: The hon. Gentleman said that this is an issue of importance to millions of people. However, one of the issues that I have wrestled with in our debates on this matter is whether that is so. Does the issue matter only to those who have whopping great pension pots? If there is a floor below which people will not be allowed to draw-down, and if stakeholder pensions will be targeted at those who are on modest earnings, will many people ever be affected by those income levels?

Mr. Flight: I thank the hon. Gentleman for his question, which I shall deal with in detail in a few moments. However, the quick answer is that the issue has to do not only with a well-pensioned elite. As money purchase provisioning works its way through—it started only in the 1980s—the number of those who will be obliged to buy an annuity will run into the millions. Within the arrangements that I have discussed, they would not have to put all their pension money into an annuity. The issue affects not only a narrow body of people. However, I shall revert to that in a moment.
8.45 pm
The key point is that the next few years will see a huge explosion in the number of people with money purchase pensions. Final-salary schemes operate essentially with a revolving pot of money—with accumulated pension assets usually invested predominantly in equities, although the equity-bond mix depends on the maturity of the scheme—out of which the pension is paid. Therefore, the capital that provides the final-salary pension should be prudently invested with scope to increase in capital value, and should not be locked into an exposure to bonds.
The key investment problems with an obligation to buy an annuity is that an overwhelming number of people will be buying a guaranteed annuity; that most of the assets

funding the annuity will be invested in bonds; and that, even at 75, one or other spouse will live for another 20 years. The Government's legislation forces annuity managers to invest all the capital available for pension provisioning in fixed-interest securities. As I have said in the House before, if a financial adviser had put all someone's capital into fixed-interest assets for 20 years, he or she would be hauled up by the Financial Services Authority for negligence and mis-advice. Investment only in gilts is simply inappropriate for the length of time that that pension capital has to provide an income.
As the House will be aware, the combination of a Budget surplus, the subsequent repayment of national debt, increasing demand for money purchase pensions and—following the passage of the Pensions Act 1995—increasing demand for fixed-interest products by mature pension schemes have all created essentially a false market in long-dated gilts. In the past 12 years, not only has the nominal interest rate decreased with lower inflation, but the real interest rate has almost halved. The real interest rate has been close to 4 per cent. for quite a long time, but, now, it is down to 2 per cent. and a bit. So what is happening elsewhere is creating a false market and, as the law stands, people are being forced to buy investment pension products based on that false market. If and when that changes, irrespective of any change in inflation, such individuals will be seen to have been grossly unfairly—and I would argue negligently—treated by the law.
I am pleased that many annuity providers have produced new products but, as the Minister will be aware, there are tax inflexibility problems associated with equity-linked annuities. In short, if an equity-linked annuity consistently performs well, the beneficiary is unable to take the full return. If the product performs poorly, investors face considerable problems if they wish to change their fund manager.
Canada and Ireland have addressed the problem—Canada did so 10 years ago and Ireland has done so in the past two years—along the lines of the recent report by the Association of Unit Trusts and Investment Funds Committee which broadly envisages the creation of a pension account into which the capital goes. Everything that comes out of the account is taxed as income. Within that pension account, the beneficiary can determine the investment policy within sensible parameters analogous to those laid down for ISAs.

Mr. Barry Gardiner: I have been listening carefully to the hon. Gentleman. Does he accept that, just as tax relief is initially given on a pension fund in order to provide certainty and security in old age, an investor may wish to diversify the application of their fund at an early stage into other ways of financial management that do not attract the same tax relief, but are not subject to the same limitations? While the hon. Gentleman is considering that point, will he also say how he sees investors who are in the fortunate position of being able to consider their financial future and think of diversifying their fund in that way in light of the remarks of the hon. Member for Northavon (Mr. Webb) about the number of people involved?

Mr. Flight: I thank the hon. Gentleman for his intervention, but I am not sure what point he is making. Could he please sharpen it up a little?

Mr. Gardiner: I do not want to make a speech on the subject. As the hon. Gentleman is aware, quite simply, tax relief is given to help provide security and certainty of provision from the point of retirement until death. I accept the problem that the hon. Gentleman has outlined as it affects many people approaching retirement. Somebody seeking to achieve better returns than they were likely to get from an annuity could have made alternative provision that did not attract the same level of tax relief.

Mr. Flight: With respect, the hon. Gentleman's intervention reflects completely wrong thinking. Tax relief is provided to help build up the maximum assets to create adequate provision for retirement. As the hon. Gentleman will be aware, a final salary pension scheme will have an appropriately balanced portfolio of equities and possibly some fixed interest investments, depending on the maturity of the scheme. That is an entirely sensible arrangement that maximises both the pension accumulation and, in due course, the tax take. Even with money purchase pensions, there is clearly an argument that the tax take would ultimately be greater to the Revenue if the assets were invested on a basis that would create better returns because everything that is drawn out is taxable as income.
Under the present rules, if there is anything left when both spouses are dead, it suffers a 30 per cent. rate of tax and then becomes subject to inheritance tax as well. The rules can be changed if the Revenue wishes, but if the hon. Member is arguing that the correct moral price for the tax benefit must be that all the money should be invested in gilts for the last 20 years of someone's life, I do not see any logic here either in terms of maximising revenue to the Treasury, or in terms of doing the best for pensions in people's old age.
I now turn to some of the issues that have been raised this evening and some of the alleged reservations by the Revenue and Treasury in respect of adopting the proposals from the AUTIF committee. It has been suggested that the AUTIF report reflects the vested interests of the investment management industry—I should declare an interest here as a member thereof—but that is a completely outdated view as the life offices that provide annuities are also substantially part of the fund management industry. Indeed, most of them would welcome the proposed changes as they provide ISAs, unit trusts and so on. There is no longer an investment management industry and a separate insurance industry. That is not how the industry is structured.
The argument has been made about the interaction between the supply of gilts and the growing volume of pension funding that will eventually have to buy annuities. The arrangements that we propose would ease that problem because people would be free to buy guaranteed annuities if they wanted to, but everyone would not be forced down that route. Therefore, it should lead to real interest rates which are more normal and not the result of a false market, as they are at present.
Some people have made the point that this territory largely involves only the better off. The average annuity purchase from each life office is between £25,000 and £30,000. The average has fallen largely because more people are using draw-down to postpone annuity purchase. I am afraid that the statistics are not particularly reliable. I might add that the Government's statistics go back to 1995. However, personal pensions have been in

existence only since 1988 and most of those now retiring may not have held a personal pension for all of that time. So the numbers of people with reasonable amounts in personal pension schemes will rise.
A survey recently conducted for the AUTIF study group found that more than 70 per cent. of annuitants had an income in excess of the proposed minimum. In other words, more than 70 per cent. of people with money purchase pensions would have capital with which they would not need to buy an annuity to take them up to a minimum pension income level. So the subject affects not just a narrow group of people but the overwhelming majority.

Mr. Webb: I broadly agree with the hon. Gentleman on this point, so I hope that he does not think that I am being critical. Which minimum is he referring to—the minimum income guarantee or the minimum in the McDonald proposals, which as I recall is roughly double the minimum income guarantee?

Mr. Flight: I was referring, as I think I mentioned, to the minimum in the AUTIF report led by Dr. Oonagh McDonald. That is where the 70 per cent. figure bites. The hon. Gentleman will find that in the report.
Of equal importance is the point that the percentage will change over time as people build up more in money purchase pensions. The proposals are aimed not at the wealthy but at all those who will be able to purchase the minimum income and will have some capital to invest thereafter. Such individuals would greatly appreciate the freedom so to do.
A good case can be made for abolishing the obligation to buy annuities, at least for stage 1 because the Government's pension guarantee virtually requires abolition to be along the lines of the AUTIF report.
The argument has also been levelled that the proposals would be a threat to defined benefit final salary schemes. My response is that they are already under threat as a result of the rising costs of final salary schemes, of companies trying to save money and, indeed, the attractions of the simple stakeholder schedule 13 legislation. In 10 years, I estimate that at least half of the existing final salary schemes will be closed. The shift to money purchase will be far greater than many realise. The Towers-Perrin survey of money purchase pension arrangements in the United Kingdom suggests that at least half the direct contribution money purchase schemes are associated with the closure of final salary schemes. That is a telling statistic.
There has been some false concern within the Revenue, if not the Treasury, that the proposals in the AUTIF report would lead to people wanting to transfer in their last year or so from a final salary scheme into some form of money purchase pot, and that employees of the Government, in particular, would want to do that because their pensions are often not funded. It is argued that the proposals would create a funding problem. The answer is that it would be extraordinary if public sector pension schemes have rules to permit that. Most do not. If others do, the rules should be changed. This option is not the norm within a final salary pension scheme in the private sector. Revenue concerns that a wide range of civil servants would want to, and be able to, switch to a money pot are wrong. They would be much better off staying in their final salary


schemes and receiving generous inflation-linked pensions. In terms of the rules of the scheme and the motivation, there is a false concern. Often, pension arrangements for spouses are considerably better within public sector schemes.
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We are dealing with a major issue that has been under debate for two years. A great deal of work has been done. The Government said that they would respond to the AUTIF report, and there has been no response. Yet about two thirds of the electorate are 46 or older and are either focusing on their pension arrangements as they are about to draw them, or are already drawing them. The Government would be most unwise in their own interests to underestimate what has become a major issue. People are aware that standard guaranteed annuities are now extremely poor value. They do not want to be locked in whether the amounts involved are large or small, and there is no logical reason why they should. There need be no loss of revenue as a result of the changes and the revenue could be greater.
There are also two small points that I would like to add to what is really the final debate on schedule 13. First, I referred earlier to the Myners report. As the Minister said, the final report is not out, but the consultative paper is. The Minister will be aware that this is all about encouraging investment in venture capital by pension schemes. Under the rules of all forms of personal pension schemes and the provisions in schedule 13, such schemes cannot invest in unquoted shares. If the Government wish to encourage greater venture capital investment by pension funds, this is an issue to be dealt with potentially within the terms of schedule 13.
Since we discussed schedule 13 in Committee, the individual pension accounts announcement has been made by the Government, I think outside the House. We welcome that announcement, but I do not understand the logic of why an IPA has to be purchased via some form of money purchase pension scheme. There is more than adequate protection within financial regulation and potential investment rules to cut out the unnecessary costs of the pension scheme umbrella and to permit IPAs to operate on an entirely analogous basis to ISAs. We would then have specific rules about who could buy an IPA and how, and who could not. Why have the Government concluded that the IPA is simply to be a method of managing money for a form of money purchase pension scheme and not a pension packet in its own right, as it easily could be?
I have strayed because, although those matters relate to the key schedule 13, they are not the key points raised by our amendments. I encourage the Government to bite the bullet and to follow Canada and Ireland, broadly to follow the AUTIF report, and to get a move on. There are hundreds of thousands of people, if not millions, who are now coming up to 75. They are extremely concerned about being forced to buy a bad annuity product. All of us receive letters from these people. The Department of Social Security is well aware of the issue, but it is ultimately a Treasury matter when it comes to reform. I fail to understand why the Government have not yet bitten the bullet.

Mr. John Butterfill: I should like to support the principle behind new clause 8, which is a well conceived proposal, but, in particular, to speak on amendments Nos. 145 and 146, to which my hon. Friend the Member for Arundel and South Downs (Mr. Flight) has just referred.
If there is any justification at all for requiring those who are retiring to use their pension pot to buy an annuity, it can only be that tax relief has been given on the accumulation that provides that pot, so it is argued that it is not unreasonable for the Revenue to require such people to buy an annuity to make sure that they are no longer a burden on the state. The compact with the state is that the purchase will guarantee, or, hopefully, will go some way to guaranteeing, that such people will not be a future burden.
But annuities are the only type of investment for the future, or virtually the only one that anyone would seriously contemplate, that carries that burden. The Government have introduced individual savings accounts, which have all the tax advantages that a pension product has, but without the disadvantages—without the requirement to buy an annuity at the end of it; without the requirement to lose one's capital at the end of the day. For the more sophisticated investors, to whom the hon. Member for Kingston and Surbiton (Mr. Davey) referred—those with large pots of money—there is the enterprise investment scheme or the venture capital trusts—much more sophisticated, perhaps more risky—in which they can invest and have even greater tax advantages.
One is puzzled to know why successive Governments have continued to lay this particular burden on those who have prudently saved for their old age, who are doing a service to society by so doing, and yet are forced into purchasing an end product, the annuity, which, as my hon. Friend the Member for Arundel and South Downs said, is probably the worst investment that people could make for their on-going retirement future. People are living much longer now than they were.
Something on the lines of the AUTIF report is not desirable but essential. The competition for the purchase of gilt-edged investments is becoming greater every year—in fact, every month. In a previous speech in the House I explained how the operation of the minimum funding requirement is creating a black hole. As gilt yields go down, so the minimum funding requirement requires institutions to purchase more gilts. By purchasing more gilts, they drive the yields down further, and so on. We have a downward spiral of gilt yields, which is becoming unstoppable.
There is a way to remedy that, at least partially, and I know that the Government are considering the minimum funding requirement to see how it can be amended. There is a suggestion that, in addition to gilts, some corporate bonds might be added as appropriate investments. I still do not think that that will solve the problem because fewer gilts are still being produced and a limited amount of money can be issued through corporate bonds, yet, as I have explained, the demand is insatiable.
What we should be doing in terms of the minimum funding requirement is what almost every other sensible fund does, which is to have a balanced portfolio where—prudently, of course—one makes sure that the appropriate ratios are maintained and looks at the total return on


investment and not simply at what can be obtained from gilts. The people who are really suffering are those who are forced to purchase gilts at the time of retirement in a market that is going further and further against them, month by month, year by year.
If we follow the suggestion in the AUTIF report, we can release people from at least part of that problem. If they are required to purchase a minimum income that will ensure that they are no longer liable to be a burden on the state—it will have to be on an indexed basis—we fully justify the tax relief; if indeed it needs justifying, because in the other forms of investment it is not required to be justified. They can then invest their money in any way they think prudent.
At present we have a ludicrous situation, shown at its most perverse by a self-administered scheme. This applies usually, though not exclusively, to people with a larger pot. There are people who have bought property into a self-administered scheme and now at the end of the day have to sell the property, which gives them a secure and reliable income, and convert it into gilts. If anyone were advised to do that it would be blatant mis-selling, far worse than any scandal we have seen in any other area. Yet we in this House and successive Governments require people to behave in that way. At some time somebody will say "Let's sue the Government for making us do something so perverse and foolish". They might have a point, although I do not think it is possible to do it. Perhaps it should be.
The best thing we can do this evening is to say that we have got it wrong, that we need to change the basis on which pensions are dealt with when they come to maturity. I hope that the Government will accept the amendment.

Mr. Frank Field: I also wish to speak to amendments Nos. 145 and 146. It was in the last Parliament that the first letters came from my constituents asking why they were forced into a financial arrangement that they thought was not the most beneficial that they could undertake to protect their retirement and possibly, as the hon. Member for Bournemouth, West (Mr. Butterfill) said, hand on wealth when they died. Although there has been a very important change since then—the election of our Government—I do not find it easier to answer that question when it comes from my constituents.
Therefore, I make a plea to the Economic Secretary to address specifically, in replying to the debate, what is the defence of the status quo and to what extent the Government are thinking and moving and in what direction.
The simple point that my constituents put to me, which I happen to agree with, and on which I have not been able to obtain a more sensible view from either the previous Government or the present one, is as follows. They accept that they have built up pension arrangements which have been supported by fellow taxpayers, and that therefore some restraints can be put on the way in which they spend the income, so that they do not receive a second injection of public funds to underpin their livelihood. In other words, they do not believe that they should be able to blow their capital and become dependent on welfare. But

what they ask is this: if they make sure that they are in no way a responsibility on the state, why should the state lay down how they should behave with the capital that they have built up?
In a sense my constituents' questions preceded the questions posed in the report that a previous Member of the House, Dr. Oonagh McDonald, recently successfully steered to publication. I am anxious to learn from the Government what their defence of the status quo is. All of us, on both sides of the House, can see that people should not be paid twice for doing the same thing, but if they are careful enough, or enter into specific arrangements, to ensure that some of their capital is put aside so that they in no sense become dependent on welfare, why should they not be able to spend the remainder, which probably, as the decades pass, will become a larger and larger proportion, in a way that suits them?
My constituents' final point is that they have built up their capital, have been pleased to do so and believe that it is their duty to do so. They believe that they were advantaged in being able to do that. They are not being cocky and understand that other people have not been as advantaged and may not have been able to do so. They also believe that, if at all possible, it is a good idea to hand on capital to children and grandchildren. I must ask the Government whether that is the view that we hold. Do we believe that wealth is not something to be gobbled up by companies or Governments but, as far as possible, should be spread as widely as possible, through the entire community? If that is so, should we not be thinking—this has been debated by those on both sides of the House—along the lines of reforming the strict rules that govern the purchase of annuities?
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The hon. Member for Bournemouth, West gave us a macro-debate on what is happening in the gilts market. He explained why it is a bad buy to purchase annuities now. Many of my constituents understand that argument. They are distressed by it and are fully aware of what is going on in the money markets in that respect. They believe that the debate involves a question of fairness in that they have done everything required of them as good citizens and wonder why the Government stop them from being even better citizens by not letting them become dependent on welfare. They want the freedom to choose how they spend their capital and, if possible, they want to pass it on to members of their extended family.
After hearing my hon. Friend the Economic Secretary's reply, I hope that I will be able to write letters to my constituents that are different from those I have had to write since they began writing to me on this topic about five or six years ago.

Mr. Webb: Had I been asked a few years ago how I wanted to spend the evening of my 35th birthday, discussing the finer points of annuities might not have been at the top of the list. However, it is a privilege to contribute to the debate.
I want to touch on Government amendment No. 83 and the associated amendments and amendment No. 146. On the concurrency amendment, like the Conservative party, the Liberal Democrats welcome the concessions that the Government have made. It would be churlish to describe


this as a victory for the Department of Social Security over the Treasury—I am sure that it was a partnership—but as such victories are rare, one could describe it as such anyway.
I have some questions about the detail of what is proposed in Government amendment No. 83, specifically the £30,000 threshold. It may be that I have missed it, but I wonder whether there has been a specific explanation for why £30,000 was chosen. Will the Economic Secretary clarify why that was chosen. Is it because it is something akin to the higher-rate threshold and that, therefore, higher-rate taxpayers are more likely to try to abuse concurrent membership of two pension schemes, or was the figure plucked from the air?
I notice that the £30,000 figure is in the primary legislation. Does that imply that it will be capped? There is no suggestion that it is to be prescribed in regulations and then to be indexed. What is the thinking behind that? Given that earnings are rising each year, is there an attempt to clamp down? It is not clear why that figure has been chosen.
My abiding impression of the concurrency issue is the recollection that, when I pressed the Financial Secretary at Social Security questions, in his halcyon days as the Minister responsible for pensions, as to whether he regarded simplicity in pensions as a virtue, he answered with a confident yes. Now that he is at the Treasury, I do not know whether he still holds that view.
It is clear that we have a dog's breakfast, and concurrency with thresholds is just another aspect of that dog's breakfast. We have completely different tax regimes for personal pensions, occupational pensions and stakeholder pensions and we have different regimes for additional contributions. Far from getting simpler under the present Government, the options have got wider and the complications have increased. I fear that people will continue making the wrong choices. Concurrent membership certainly helps to prevent one wrong choice, and to that extent we welcome the amendment.
I wonder sometimes whether the Government have lost the big picture. They probably came into office believing in simplicity, and it may be that the realities of office mean that simplicity will never be delivered. I hope to find that out for myself at some point, but in the interim I would be interested to learn whether the Economic Secretary still holds to the goal of simplicity. I wonder whether, with hand on heart, she can say that the strategy that the Government have adopted has created a simpler pension regime for the investor who, in the world envisaged by the Government, will receive less advice, not more. The stakeholder pension purchaser will probably have to get by, at best, with a decision tree, but often it is suggested that the person seek advice. Government amendment No. 83 moves in the right direction of clearing up a mess that the Government have created, but I wonder whether the big picture has been lost.
On amendment No. 146, the hon. Member for Arundel and South Downs (Mr. Flight) has become associated with this issue in this Parliament and I praise his efforts and persistence in keeping it before the House. The Liberal Democrats broadly sympathise with his concerns, but I had an informative conversation this morning with Evergreen Retirement Assurance, a company which has

written to several hon. Members and met some of them. It raised some significant issues that are germane to amendment No. 146.
The first is the issue of the compulsory purchase of annuity, but the question is whose annuity is purchased. Is it the annuity provided by the company with which a person has saved or is it the best annuity on the market? The point that the company, and others, make is that choosing the wrong annuity can cost one 10 per cent. of one's income for the rest of one's life. That could be hundreds, if not thousands, of pounds a year and potentially tens of thousands of pounds over a lifetime. However, the issue appears to have received almost no attention.
I asked the company what was needed to resolve the problem, because it appears that too many people, out of inertia, condemn themselves to too low an income for the rest of their lives and, potentially, cost the taxpayer money by ending up on the minimum income guarantee or housing benefit. The answer I was given was that the problem could be addressed if the Financial Services Authority were to say that the letter to those who had accumulated a pension pot and were about to purchase an annuity had to include the statement in great big bold capitals, "You have a choice and it may be that your provider does not provide the best product, " before any mention of the product of the company that had provided the pension. Or perhaps companies could be obliged to include a freephone number for an Inland Revenue helpline that would provide the telephone numbers of five annuity bureaus. That could make a big difference to the incomes in retirement of many people.
I asked why those solutions had not been tried and the answer was that the FSA would be keen to do so, but it has not been pushed by the Treasury. I hope that that is wrong and the Economic Secretary will tell us that she has taken a stick to the FSA and it will act. If that is not the case, I hope that she will assure us in her response to the debate that those people who have taken out annuities are getting better value for them. One of the legitimate concerns expressed by the hon. Member for Arundel and South Downs was that the annuities are bad enough value as it is for many people and if they buy one that is not the best available, it is a double whammy.
I do not wish to go too deeply into the question of how important the issue is and to how many people, but I wonder whether its importance to the general public is overstated.

Mr. Field: It may be an issue that will grow in importance.

Mr. Webb: I agree, for some of the reasons given by the hon. Member for Arundel and South Downs, but I wonder how quickly it will grow and for how many people. The hon. Member for Arundel and South Downs said that 70 per cent. of those with money purchase pensions who are now retiring are living on incomes above the threshold recommended in the AUTIF report. However, that is not the test of whether draw-down would be attractive to someone. If one had a combined income just above the guaranteed threshold and had £1,000 left in the pot, one would not gain very much by drawing down £1,000, which one might just as well convert, given the costs of fiddling around with that sum. Seventy per cent.


of people with money purchase pensions may be above that threshold, but I would have thought that the number who are sufficiently above it to want to start fiddling around with draw-down is still quite limited.
I know that stakeholder pensions have not yet started, but I would have thought that those who will get such pensions and for whom this will be a serious issue will not be affected by it for a long time, as the target market is people who will struggle to get clear of the first guarantee, let alone the second. Clearly, there is a drift to money purchase schemes, which are affected by the issue, which will grow in importance. I believe that I have had three letters about the matter which, multiplied by the number of Members, is about 2,000. Perhaps I do not attract letters about annuities—I am sure that the hon. Member for Arundel and South Downs does—but I wonder whether the scale of the problem has been overstated.
The problem is, however, significant, and we support the general stance of the hon. Member for Arundel and South Downs. This morning, a worry was expressed to me, and I am concerned about risking another mis-selling. We talked about mis-selling and forcing people to invest in gilts for the last 20 or 30 years of their life, which is not an optimal strategy. However, will people end up with draw-down policies that are not right for them? Again, Evergreen Retirement Assurance tells me that it has surveyed the investment strategy of those draw-down policies. It turns out that a good chunk of the investment strategy of a draw-down policy—about a third, Evergreen told me—is in gilts. Therefore, if people try to get hefty returns from the remaining 70 per cent, a good chunk having had to be left in the fund to cover the double guarantee level, one starts to wonder how they will make the sort of returns that are being talked about.
A point made to me that has some force is that it is wrong to look at the issue of annuities in isolation and say that it is just about an age limit of 75. I am sure that the hon. Member for Arundel and South Downs does not do that. However, it was pointed out to me that the matter involves an age limit of 75, the open-market operation and long-term care. Why cannot one buy an annuity which, if one has to go into nursing care, can be converted into a much higher annuity to cover the fees? At present, that is not allowed. There is a danger that, if we pick at bits of the matter in amendments, we shall miss the big picture, which takes me back to my starting point of simplicity.
We welcome the amendment on concurrency as far as it goes, as it is a step in the right direction. However, it is a symptom of a messy system, which is messier than it was three years ago. We generally sympathise with the point on annuities, but we want the matter to be responded to in the round, as more issues are involved than just compulsion at 75. I am grateful for the chance to put my concerns on the record and I hope that the Minister will respond specifically to the point about the open-market option and put a rocket under the FSA.

Miss Melanie Johnson: I should like to thank right hon. and hon. Members on both sides of the House for their thoughtful contributions to our debate and the knowledgeable points that they have all made.
May I start by responding to new clause 8 before turning to the amendments? I shall do my best to cover the points that Members have made in the course of our

debate. I thank the hon. Member for Kingston and Surbiton (Mr. Davey) for his clear exposition of the reasoning behind new clause 8. I have recently corresponded on this very issue with his colleague the hon. Member for Northavon (Mr. Webb). However, for the reasons that I shall outline, I hope that it is a probing proposal that will be withdrawn.
The problem is of long standing and has been reviewed on several occasions by the Government in office. On the last occasion, in 1995, the Institute of Chartered Accountants in Scotland put forward a proposal that was very similar to the new clause, but it withdrew it after talking to various Scottish annuity providers, who suggested that switching to schedule E would be an onerous administrative task for insurers. As drafted, the new clause would impose the requirement to tax annuities arising from retirement annuity contracts under schedule E from the date of the Bill's Royal Assent. That is—hopefully—only days away.
So, there is no provision for agreeing later implementation dates with the Inland Revenue, as was allowed when the schedule E requirement was placed on providers of personal pension annuities. The new clause would therefore place a considerable burden on financial institutions, which would be particularly difficult for them at the present time and within the time scales about which I have spoken.
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In the past, the insurance industry was against operating tax codes for annuities from retirement annuity contracts because some companies had paper-based systems that were not up to the task. That is not a reason for never making changes. As computerised systems are increasingly replacing older systems, the matter could usefully be looked at again. I hope that the hon. Member for Kingston and Surbiton will accept my assurance of interest in the topic and of the value of the points that he has raised.
I am asking officials to discuss the matter further with the Association of British Insurers and to report back to me. I am grateful to the hon. Gentleman for raising the issue. I appreciate his comments about on-going discussions, but they will be given a further ministerial boost. For the reasons that I have given, I hope that he will feel able to withdraw the motion.
Government amendments Nos. 83 to 86 are all connected with the issue of concurrency. I acknowledge that they are the result of the very helpful and constructive series of discussions with representatives of employers, employees and the pension industry. In particular, my thanks go to the ABI, the National Association of Pension Funds, the Trades Union Congress, the Confederation of British Industry, AUTIF and the Pensions Management Institute for their contributions.
There was very much a partnership between the Treasury and the Department of Social Security in trying to find a way forward on concurrency with the industry and interested groups. I hope that hon. Members accept that that is a fine demonstration of effective cross-departmental work in government in partnership with the private sector.
At the moment, a member of an employer's pension scheme cannot normally contribute to a personal scheme. The amendments will change that. They will allow


someone who is not a controlling director and who does not earn more than £30,000 a year to pay up to £3, 600 into a stakeholder or personal pension in any one of the subsequent five years assessed.
Perhaps I should at this point reply on the issue of the £30,000 limit; it is easiest to address that question at this moment. We picked the figure of £30,000, after some considerable thought, to try to strike the right balance between cost, ease of administration and coverage. A lower figure would increase complexity by excluding more individuals, whereas a higher figure would reduce complexity but increase Exchequer costs. We decided that £30,000 struck the right balance. It will reach nearly 90 per cent. of those in occupational schemes, which seems good coverage, and will cost £150-odd million by 2010.
I should like to make several responses on the issue of simplicity, but perhaps that would take too long. I should like to tax the remarks of the hon. Member for Northavon on simplicity by saying that I believe strongly that we have simplified several matters, not least tax arrangements for stakeholders. Indeed, the concurrency arrangements themselves make matters much easier. It is true that the £30,000 limit is in the Bill, as the hon. Gentleman said, but that is not say that it will not be reviewed from time to time. Indeed, we have no intention of lowering the figure.
We have not index-linked the figure partly because it gives people a degree of simplicity in their arrangements. Once a person has earned under the £30,000 limit in one year, they know that they will for five years be able to pay in on a concurrency arrangement. Therefore, the provision has the built-in simplicity that the hon. Gentleman was demanding and that we have succeeded in delivering in a number of changes since we came to government.
Stakeholder pensions have been extended to about 8 million more people, 90 per cent. of whom are in occupational pensions. Many of those employees do not expect to receive a large pension, but they are currently putting off making further provision because they consider existing AVCs and FSAVCs to be complicated and inflexible. They also worry about those products because of past pension mis-selling. We are offering those employees the opportunity to use a new, good value stakeholder pension to increase their retirement savings. It is worthwhile remembering that 40 per cent. of those who have AVCs are currently below the £30,000 income level. It is not the case that those with incomes of less than £30,000 do not already pay into AVCs.
Some have argued that we should allow concurrency for everyone, but such an approach would not be focused and would not represent good value for money. We therefore worked with the pensions industry earlier this year to produce the more focused approach set out in the amendments. We have followed the points made to us during those discussions. The proposal will help more individuals to save more money for their retirement, but it will also remove some of the practical problems that might otherwise have arisen when people change jobs. Again, simplicity is important.
The proposal should help pension providers to offer lower-cost pensions by increasing the benefits of scale. That will help to open up the pensions market, and it will offer consumers more choice and better value products. It has had an excellent reception, and therefore we are

confident that we are right to believe that there is merit in the open approach that we have adopted and in the details of the changes that we propose to make.
I turn next to some of the issues raised under amendment No. 145. It is worthwhile saying that that amendment deals with points made in Standing Committee under what was then amendment No. 181, which Opposition Members tabled but then withdrew. They are returning to the matter under cover of a technically deficient amendment. I hope that I shall persuade them not to press it to a Division for two reasons. Up to 25 per cent. of pension contributions can be used to insure future contributions against sickness and incapacity. That reduces the amount of contributions going into pension funds.
The changes that we have included in the Bill will directly boost money entering peoples' pension funds, rather than subsidising insurance contributions. That is achieved by stopping tax relief up front, but giving it when the payment arising from a claim under the insurance policy is paid into the pension fund. In effect, that involves recycling.
Like all other contributions, tax at the basic rate will be added to the payment into the pension fund. In turn, that means that a lower sum can be assured. The change in the tax treatment of waiver insurance will not increase what is paid overall for the insurance cover, and some companies have suggested that it might reduce the premiums. Similarly, because tax relief is given on the use of the proceeds of the insurance, there is no need for restrictions on what can or cannot be insured. So providers can extend the insurance to cover situations that they could not cover before, such as unemployment and not just ill-health. I hope that I have fully explained the attractiveness of those arrangements. Many people accept that they represent a more flexible, better deal.
Overall, the changes that we have introduced will improve the existing arrangements. We know from questions addressed to the Revenue that companies are already engaged in imaginative product design based on our proposals. We cannot therefore support amendment No. 145, under which the existing arrangements would be re-introduced.
Under amendment No. 146, the requirement for the holder of a tax approved pension plan to purchase an annuity with the proceeds of the plan not later than age 75 would be removed. I assume that the intention is to permit income draw-down arrangements to continue indefinitely. Amendment No. 146 is flawed, but I do not place much weight on that, because it would not amend the section in the existing legislation that requires income draw-down to cease by age 75. The result would be that the holder of a personal pension could not continue income draw-down, but would be compelled to buy an annuity so that benefits could cease altogether. I am sure that that is not what is intended.
Many people have raised general concerns about whether annuities are good value. That was discussed in the Budget debate, and I recall hearing the hon. Member for Bournemouth, West (Mr. Butterfill) discuss the minimum funding requirement and I know of his connections with the topic. We have also discussed these matters in the Standing Committee. I shall explain why the amendment would not provide a solution, although I accept that many interesting issues relating to points raised in debate remain to be explored fully.
The main purpose of a pension scheme is to provide secure income for scheme members for the whole of their retirement. It is worth highlighting that point because the hon. Member for Bournemouth, West suggested that the principal purpose might be recouping tax relief. A key feature of annuities is that they provide income for the remainder of a pensioner's life. Variations on the basic product, such as with-profits annuities, already exist, but they all have that essential core characteristic.
Tax rules therefore require personal pensions and other money purchase pension schemes to buy out their benefits as annuities to guarantee a continuing income, no matter how long the scheme members may live. To give flexibility, the tax rules allow members of money purchase pension schemes to take an income from their pension funds from 50 and to defer the annuity until they are 75. People are familiar with the detail of those arrangements.
Income draw-down is theoretically available to all members of money purchase pension schemes. However, the perceived wisdom is that it is suitable only for those with larger funds—at least £100,000—who can afford to bear associated risks. Depending on the investment returns achieved, someone who chooses to take maximum income from his or her fund might see a substantial reduction in income at age 75 in comparison with what he or she might have been able to secure by buying an annuity at, say, 60. The age limit of 75 strikes a balance between flexibility in the timing of the annuity purchase and the increasing danger of the fund being exhausted as the person continues to draw on it as he or she grows older.
Particular issues have been raised and I shall try to address the main ones. First, my right hon. Friend the Member for Birkenhead (Mr. Field) commented on inheritance and the defence of the status quo. It is not clear that the underlying value of annuities has in fact fallen once all other factors are taken into consideration. We could have a lengthy debate about that, but other factors should be taken into consideration. [Interruption.] Notwithstanding the mutterings of the Treasury Whip about my ideas of a lengthy debate, we accept that those factors exist.
We have sustained low inflation, which looks set to continue, and that is one factor in enabling annuities to retain their real purchasing power far better than did higher headline annuity rates paid in a higher inflation environment. We all know that life expectancy is increasing, and, as it is the hon. Member for Northavon's birthday, we can hope that that will affect him. People can expect to draw an annuity income for longer in their retirement. The value of a guaranteed income for life should not be underestimated. Many pensioners will still enjoy secure income as they grow older. The Oonagh McDonald report accepts that annuity arrangements work well for many people.
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My right hon. Friend the Member for Birkenhead said that pensioners should be able to pass on their remaining funds, at death, to their dependants. Generous tax reliefs were provided to support that. Annuities are not supposed to be tax-advantaged inheritance vehicles, however—they

are insurance products. One way in which they work—a point that sometimes gets lost in this debate—is as a pooling of pension funds, enabling those who live longer than the average life expectancy to go on receiving the guaranteed income because, sadly, some people do not live that long. That is an important point about the way in which annuities are structured.
Increased longevity means that annuities are paid out for longer. A number of right hon. and hon. Members have remarked on the need to purchase more gilts to maintain the same income stream to back an annuity and on the availability of long-dated gilts. The MFR review has not yet reported; we will want to consider it when it reports, which I believe is not a long way off. As the hon. Member for Arundel and South Downs (Mr. Flight) said, the outcome of the Myners review will provide another aspect to all the matters being considered.
The hon. Gentleman and others have commented on the new products that are being produced. We are very interested in those new products and in new ideas for tackling the issues that the topic raises. We are looking at the Oonagh McDonald report and also at the more recent report of the Social Market Foundation. There are a number of issues surrounding the purchase of annuities and the supply of gilts, so there are many matters to be considered. When we have got all the information together and given it due consideration, if we think that there is a new way forward, we will consult people about those arrangements. I can give no undertakings to do so, but I hope that right hon. and hon. Members will have gathered from the tone of my responses that we believe the issue to be worthy of full consideration.
We have been asked why we made the changes to waiver insurance. I believe that I have already covered this point, but let me say again that our approach is better because it is better focused by boosting income going into the pension. Rather than tax subsidising insurance arrangements, it provides better cover against eventualities, and is better value and cheaper overall.
The hon. Gentleman expressed the view that annuities lock people into bonds and that equity-linked annuities cause problems. A number of innovative non-bond-based annuities are coming on to the market. These will benefit the majority with small to medium pension pots. Removing the requirement to purchase an annuity could stifle that development. As I said, Oonagh McDonald's report recognises that an annuity will remain the best option for many people. The Inland Revenue is working with financial institutions to aid the development of equity-based annuities. We are giving all these matters our full consideration.

Mr. Webb: Perhaps I have pre-empted the Minister regarding the open market option. Can she reassure us that she will push those who send out the letters to make sure that people are more aware of their choices than they are at present?

Miss Johnson: I am happy to give the hon. Gentleman the assurance that I will look at that issue. I cannot go further than that at this point, but I will in due course study in Hansard the points that have been made in the debate by right hon. and hon. Members.
I hope that none of the Opposition amendments is pressed to a vote, and that the House will support the Government amendments.

Mr. Edward Davey: The debate has been interesting and useful. The Minister has put on record the Government's thinking on some of these matters. I am sure that hon. Members and people outside the House will want to consider her words with care. She has helped explain the direction of Government policy in this area, and I am grateful for that.
The Minister made some welcome comments about new clause 8. I hope that she will urge her officials to produce genuine solutions to the problem of how the income from retirement annuities is administered for tax, and to the related problem that pensioners face extra complexity in their tax arrangements. However, I do not want to detain the House so I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Schedule 2

AMUSEMENT MACHINE LICENCE DUTY

Amendments made: No. 7, in page 122, line 45, leave out from "any" to end of line 48 and insert—
'gaming machine which is a small—prize machine or five—penny machine.'.

No. 8, in page 123, line 4, at end insert—
'(aa) a five-penny machine,'.

No. 9, in page 124, line 44, leave out from beginning to end of line 5 on page 125 and insert—
'3.—(1) In any case where—

(a) the Commissioners give a default notice,
(b) the due date specified in the notice passes, and
(c) it appears to the Commissioners that at some time during the alleged default period specified in the notice one or more amusement machines were provided for play on the relevant premises so specified without an amusement machine licence being in force in relation to the machines,
the Commissioners may grant, in accordance with this paragraph, one or more licences in relation to each of the machines.
(2) In this Schedule—
default licence" means a licence granted by the Commissioners under sub—paragraph (1) above;
unlicensed machine" means a machine in relation to which a default licence is granted by the Commissioners.'.—[Mr. Timms.]

Clause 20

VEHICLE EXCISE DUTY

Amendments made: No. 94, in page 16, line 2, leave out from second "of to end of line 24 and insert "licences—

(a) issued in the period beginning with 1st March 2000 and ending with 28th February 2001, and
(b) not surrendered before the end of that period,
where the amount of vehicle excise duty chargeable on the licence would have been less if the amendment in subsection (1) had applied.

(3) The amount of the refund is—

(a) £55 for a 12 month licence, and
(b) £27.50 for a 6 month licence.

(4) The person entitled to the refund is—

(a) in the case of a licence in force on 28th February 2001, the keeper of the vehicle on that date;
(b) in the case of a licence that has ceased to be in force before that date, the keeper of the vehicle when the licence expired.
(5) For the purposes of subsection (4) the keeper of the vehicle shall be taken to be—

(a) the person registered as keeper of the vehicle on the date in question, or
(b) if the Secretary of State has received notification of a change of ownership of the vehicle as a result of which another person is on that date entitled to be registered as the new keeper of the vehicle, that person.'.

No. 95, in page 16, line 33, leave out from "section" to end of line 39 and insert—
'in respect of a licence does not affect the validity of the licence.
(8A) For the purposes of section 19 of the Vehicle Excise and Registration Act 1994 (surrender of licences) as it applies to the surrender on or after 1st March 2001 of a licence in respect of which a refund under this section has been made, or applied for, the annual rate of duty chargeable on the licence shall be taken to be that which would have been chargeable if the amendment in subsection (1) above had applied.'.

No. 96, in page 16, line 43, at end insert—
'(10) In the application of this section to Northern Ireland, references to registration as the keeper of a vehicle shall be read as references to registration as the owner of the vehicle.'.—[Mr. Timms.]

Clause 30

CLIMATE CHANGE LEVY

Mr. Letwin: I beg to move amendment No. 98, in page 20, line 4, leave out from "until" to end of line 6 and insert—
'one year after the expiry of a twelve month period during which UK emissions of CO2 show an increase on the previous year'.
I do not want to detain the House, not least because my voice is failing. The arguments on the climate change levy are well rehearsed, but we could not let pass this opportunity to explain to the House why the Opposition consider that the implementation of this dreadful new tax should be delayed. A much better solution would be its withdrawal. Given the mood of co-operation in the House, perhaps the Financial Secretary will have a Damascene conversion and withdraw this dreadful tax before the evening is out.
Page 108 of the Red Book contains chart 6.2, which shows the root of the conceptual problem with the climate change levy. The number of millions of tonnes of carbon released through greenhouse gas emissions has been falling steadily since 1990 and remains on a declining trend. The new levy is being introduced at a time when there is no need for it.
What is worse, it will be entirely ineffective, not least because all the industries most able to respond to it, through the elasticity of price in relation to production, will be exempt, for one reason or another. The levy is a classic example of a new tax that is misnamed and misdesigned. With the exception of the companies whose behaviour it might affect, it applies to all companies of all sizes. It will be widely regarded as a supreme example of a stealth tax. I doubt whether the Financial Secretary


will, even now, be able to mention any small business in Britain that is yet aware of what is about to hit it—but hit it this tax will.
The tax is not neutral, particularly because the offsetting national insurance contributions reduction, even if that were real, would not be coincident with the effect of the tax. Firms will be either gainers or losers. As the Financial Secretary is well aware, we are by no means persuaded that the offsetting NIC reduction will remain as an effect of the introduction of this levy. In any event, the offsetting NIC changes could have been introduced without the levy.
The levy is a tax. It is not a neutral tax. It is not neutral either in its particular or in its general effects. Its effect will be to raise the Government's tax income.
The levy is complicated. We became aware, as we went through it in Committee, that it is probably the most complicated tax that the Government have ever introduced—and that is saying something. If I remember correctly, its provisions extended to 55 pages. The situation has been made worse rather than better by Government amendments, which have made the tax significantly more complicated.
This tax hits our competitiveness. As we explained repeatedly in Committee, it is not levied outside the European Union, and many EU states have exemptions from comparable taxes. It is unnecessary, and it is the more unnecessary because other more effective means, such as voluntary agreements and emissions trading, could have been used to achieve our Kyoto targets of further reductions in greenhouse gas emissions.
Most important, and most directly germane to the amendment, is the fact that the policy represents work in progress—actually, I am doing the Government undue justice in saying that, because it is actually a mess in progress. It may be making gradual progress towards coherence, but it certainly has not got there yet. No one knows how combined heat and power schemes will be affected, and no one understands how the rebate mechanisms will work. No one knows whether the EU clearances on state aid will work. In that connection, I draw the Financial Secretary's attention to a letter, which he may also have received, from the Chemical Industries Association. It states
the real "showstopper" for industries such as chemicals
is that the Government may be
unable to get its existing package of Levy concessions…past the European Commission.
The tax is hugely complicated, not neutral, and does not achieve anything that needs achieving. Even if it were necessary to achieve something, the levy cannot achieve it as well as other measures could. It is also undeveloped both structurally and legally. All we seek with this modest little amendment is to delay this dreadful measure until there is evidence that it is required, that it has been sorted out and is legally feasible, and that it will work. Until that has been done, I do not see the slightest shred of justification for the application of the tax.
I hope that the Financial Secretary will have seen as much light as his colleagues have seen on double tax relief. By changing their minds, they have mercifully spared British industry from one of the worst disasters

that could have befallen it. I hope that he will tell us that he will accept this amendment—this life-saving device that we have thrown him—with the open arms with which it would behove him to accept it.

Mr. Andrew Stunell: As the hon. Member for West Dorset (Mr. Letwin) has said, the climate change levy was extensively debated in Committee. The Conservatives and the Liberal Democrats tabled amendments. The Liberal Democrats sought to improve and develop the tax. It is right to call it a tax—I certainly agree with the hon. Gentleman on that point. The Conservatives were consistently ambiguous in their intentions and in the amendments that they tabled.

Mr. Jack: Does the hon. Gentleman accept that my amendment on a 100 per cent. exemption from the climate change levy for the horticulture industry was clear and utterly unambiguous?

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Mr. Stunell: The right hon. Gentleman is absolutely right, and he will recall that I supported that amendment.

Mr. Letwin: I hope that the hon. Gentleman will recognise that any ambiguity in our remarks in Committee was entirely due to our ineptitude as orators, because in fact our position is wholly unambiguous. We regard the climate change levy as an aberration that should never have been brought before Parliament.

Mr. Stunell: There we have it. That, in a nutshell, encapsulates why we cannot support the amendment.
Whatever the defects of the climate change levy—I shall mention one or two in a moment—the fact is that it is just about the Government's only visible policy for fulfilling our Kyoto obligations. Hundreds of consultation papers have been issued and many sensible proposals have been mooted, but nothing has been done. The levy, with all its defects, should in general terms be supported and developed rather than opposed and defeated.
We supported the principle on the Floor of the House and in Committee, but we voted against the schedule because of the manifest difficulties in its operation. The Conservative case against the tax is unclear. It is founded on an assertion about what is best for business, but entirely leaves out what might be best for the environment, and therefore for business too.
Substantial opportunities exist for United Kingdom businesses in the vigorous pursuit of climate change policy. There is the opportunity to be a world leader, and for jobs and investment to flow from a positive response to the Kyoto protocol. In all honesty, the climate change levy is only a small brick in the wall of such a policy, and it is by no means perfect—but the Conservatives owe it to themselves to say clearly whether they think there is a problem with climate change or whether they now repudiate the stance taken by the right hon. Member for Suffolk, Coastal (Mr. Gummer) when he first set the United Kingdom Government on the track of responding to this fundamental issue. If they do, they should say so, and if not, they should say what policies they think should be in place.

Mr. Letwin: We accept that there may be a serious problem in the long run, although we are currently


meeting the Kyoto standards, but the hon. Gentleman should accept that we have specifically mentioned emissions trading and voluntary agreements as serious ways forward. We do not accept that the corner shop, which cannot turn off its lights and reduce its electricity use, or do anything else to achieve the Kyoto targets, should be subject to a levy with no environmental purpose whatever, designed solely to increase the amount of money in the Chancellor's coffers—although I admit that after this afternoon, that will be very necessary.

Mr. Stunell: This afternoon I had the benefit of meeting representatives of Sainsbury's—not exactly a corner shop, I concede, as it has about 800 premises in this country—and they made the point that some of the ways in which the levy is coming into force could have been improved, in particular by accepting some of the amendments tabled by Liberal Democrat Members in Committee.
I am thinking in particular of the need for the tax to be introduced at a low level, along with a clear long-term signal that the intention is to raise it. I know how businesses respond when they know the direction in which Government policy is going—when they see that it is starting at a level that is not punitive and will not damage competitiveness, but signals to them that they must make investment decisions that will take them in the right direction.
Every shop in the country can save energy, whether its current activity involves refrigeration, lighting, insulation or simply controlling the flow of heat from its premises through open doors in winter. There is a tremendous gap between good practice and bad practice. Most professional experts say that between 20 and 35 per cent. of the energy currently used could be saved, so we know that there is scope for savings. The first question is, "Is that necessary?" The hon. Gentleman has said he accepts that it is. The next question is, "If it is necessary, and if it is possible, is the climate change levy a useful vehicle?" The answer is that it is a vehicle with some use, but that it does not give the complete picture, and is certainly not perfect.
Liberal Democrats have criticisms of the climate change levy. We have pointed out, for instance, that it is not a tax on carbon emissions, which are what it was designed to prevent. We have also pointed out that it is being introduced at too high a level, and, in that sense, too abruptly, and that it gives no clear signals for the future.
We established in Committee that the Treasury expected the tax to rise by the rate of inflation—in other words, to be inflation-linked. We do not think that that is the right approach. We think that we should have introduced the tax at, say, 50 per cent. of its current level, and that the Bill should have indicated clearly that a series of steps were involved. We believe that it should be clear to industry and commerce that in 10 years' time—by 2010, which is becoming a magic environmental date—they will need to take the levy into account, because it will constitute a significant impost on their fixed costs.
We also criticised the proposal for another reason. Not only does it not tax carbon, it does tax some renewables—in particular, large-scale hydro-electricity generation schemes involving more than 10 MW. In Committee that consideration was dismissed as not being particularly important, but such schemes provide about half the country's current renewable energy resources.
The Government do not seem to have recognised that in the new market—in the new electricity trading arrangements—those hydro schemes will be competing in a very different world from the world in which they were designed and built. At least some operators are concerned about their capacity to sell into that new market in a way that will enable them to remain viable. Because large-scale hydro schemes will be hit by the levy, there is a serious risk that they will be driven out of the market and replaced by the use of another fuel—inevitably, a fossil fuel. That would increase carbon emissions.
We have also criticised the tax because it is undoubtedly complicated. So far its provisions cover 83 pages, and I assume that subsequently, all the additional pages of Government amendments will be attached. I think that that will add up to 86 or 87 pages. Anyway, clearly this will be a phenomenally complex piece of legislation. It must also be said that we shall deal later with Government amendments responding to some of the criticisms made in connection with combined heat and power, and, to a limited extent, horticulture.
I find it surprising that, having decided to table just one amendment, the Conservatives should base that amendment on the assumption first that we do not need to start as soon as possible, because there is not enough evidence for us to know what we are supposed to be doing now, and secondly, apparently, that the longer we put off any action in the House, the better it will be for business and the environment.
The Liberal Democrats reject that completely. We do not accept an argument for delay—an argument that is founded on disbelief. We do not think that the House should accept an argument that is so disingenuous and self-serving. We shall vote against amendment No. 98 not because we think that the Government have come up with a perfect vehicle, but because the planet faces a situation in which any vehicle is better than no vehicle.

Mr. Alasdair Morgan: I should like to pick up on the points that were made by the hon. Member for Hazel Grove (Mr. Stunell) and to address—and to ask the Minister to respond to—the particular problems faced by Scottish and Southern Energy and those of its plants that formerly belonged to the North of Scotland Hydro-Electric Board. The board was set up to generate electricity from renewable resources, which in itself was unusual. It also had a specific social responsibility in the highlands of Scotland: to provide electricity to remote glens where electricity was not available.
The company has a significant number of small and medium hydro plants operating in the highlands; those are plants with between 10 and 25 MW capacity. It is my understanding—I have to take it on trust because, having read schedule 6, I am none the wiser about what it means—that plants under 10 MW will be exempted from the levy. From talking to Scottish and Southern Energy, I believe that it feels that plants of over 25 MW can compete commercially with the implications of the levy.
Most of the plants that we are talking about were built during the early 1950s; some were built in the late 1950s in the great spate of hydro building in the highlands of Scotland. Therefore, they are reaching the end of their useful life. It may come as a surprise to some tourists, but Scotland is not a particularly wet country. It certainly is not in terms of hydro generation; I was speaking to the


chairman of the Scottish tourist board at the end of last week, and he wished me to emphasise that point about the weather. Those plants operate at a load factor of about 30 per cent. If the climate change levy is imposed on them, the renewal of their equipment—which is due as we speak and which would extend their life for a further 30 years—would not, in the estimation of Scottish and Southern Energy, be economic in current market conditions.
It would be tragic for the highlands if that investment, much of which was the brainchild of the first post-war Labour Government, elected in 1945, was lost. We would lose that valuable resource to the highlands. It would be ironic if a levy that was designed to encourage renewable energy led to the scrapping of some of the most significant and successful renewable energy schemes ever in this country.
Therefore, I urge reconsideration, if for no other reason than to avoid disappointment for the Scottish Executive—the Scottish Labour-Liberal Executive—which as recently as 11 July, issued a press release on an agreement that was signed at Lubreoch power station in Killin, near where I was brought up. If I remember rightly, that is one of the power stations that I am talking about: it has a fairly small capacity and was built in the early 1950s. The press release says:
SSE will provide 100 per cent. of the Executive's requirements from renewable resources.

Mrs. Margaret Ewing: On a point of order, Mr. Deputy Speaker. May I point out that no one on the Front Bench appears to be listening to the significant points being made by my hon. Friend the Member for Galloway and Upper Nithsdale (Mr. Morgan)?

Mr. Deputy Speaker (Mr. Michael J. Martin): So long as I am listening, that is the important thing.

Mr. Morgan: I thank you for your attention, Mr. Deputy Speaker.
I continue with the quote from the Scottish Executive, which I am sure everyone on the Front Bench listens to:
This is a first for central government and it underlines our commitment to the promotion of renewable energy as outlined in our draft Scottish Climate Change Programme.
We are moving in the right direction and I am delighted to note that SSE are able to provide the public sector with a supply that is 100 per cent. renewable.
I ask Ministers not only to spare the blushes of the Scottish Executive, but especially to encourage the renewal of existing renewable energy supplies by reconsidering their current approach to those particular power stations.

Mr. Denis MacShane: I should like to make a few comments on behalf of the United Kingdom's electric arc furnace users. Electric arc furnaces consume recycled material—scrap metal—to produce steel, but those steel producers are concerned about the climate change levy. I pay tribute to my hon. Friend the Financial Secretary for receiving many deputations and representations from the steel industry. However,

although the levy has been negotiated down to help the industry—which is going through very great difficulties—one anomaly remains. I had planned to table an amendment on the anomaly, but prefer to make a few comments about it. I hope that my hon. Friend will reply to them.
I ask the Minister to consider narrowly the very few companies that use electric arc furnaces, which consume scrap metal—which is recycled material. There is a fear that, as currently formulated, the climate change levy will force the sector to close those furnaces and to use iron ore. It would be perverse if the tax, instead of encouraging the use of recycled material, caused the sector to return to raw iron ore to produce the steel that our economy wants.
I ask my hon. Friend the Minister to consider whether—when fine-tuning the Bill, before it goes to another place and becomes law—he might receive a delegation of me and other hon. Members representing the steel communities where electric arc furnaces are being operated, to discuss whether the legislation might take on board those considerations.

Mr. Jack: May I remind the hon. Member for Hazel Grove (Mr. Stunell)—who chastised Conservative Members for having no alternative to the climate change levy—not only of my own remarks in Committee, but of the answer to a parliamentary question that elicited the fact that we would save 2 million tonnes of CO2, which was the original target of the climate change levy, if the gas-fired power station moratorium were lifted and only one third of those power stations were built? If we achieved that saving, the Government would have no need for the bureaucracy that they are proposing. Conservative Members take entirely seriously the state of the planet. However, lifting the gas moratorium would deliver in a much more straightforward manner what the Government's great cumbersome tax is supposed to do.
In Committee, I also proposed a biomass alternative which, admittedly, needs more work. However, the conversion of 0.05 per cent. of the cultivable land area of the United Kingdom to short rotational coppice would, at a stroke, save more than 2 million tonnes of CO2. Recently, I received a letter from Shell International in support of that proposition.
Therefore, Conservative Members need no lectures from Liberal Democrat Front Benchers that we do not take the subject seriously and that we have no alternatives. I shall not make a lengthy speech now about the virtues of nuclear power—fuel for which comes from my own constituency—but simply say that nuclear power is CO2-free. However, the Government do not have a proper nuclear strategy.
I am speaking to this amendment to record once again, despite Government amendments, my deep disappointment that Ministers have done nothing to relieve the horticulture industry of a wholly unnecessary new tax. I am delighted to see my hon. Friend the Member for Broxbourne (Mrs. Roe) in the Chamber. On 15 June 2000, in an Adjournment debate, she reminded the House that the National Farmers Union had estimated that the climate change levy was effectively a tax of £3,750 per acre on glasshouses in this country.
The Government talk about competitiveness; I heard the Chancellor's speech today. If representatives of the glasshouse industry were in the same room as the


Chancellor, they would think that he was from another planet. The climate change levy has visited on the glasshouse industry a tax that is wholly unnecessary for an industry that consumes its own output of carbon dioxide and has the potential for saving more.
The levy really does not apply and it makes the industry uncompetitive. There is no levy in Spain, Belgium, Ireland or Portugal. In the Netherlands, negotiations are taking place with the industry to reduce emissions, but no tax is envisaged. Here, however, the Government are imposing a tax on our horticulture industry which will diminish its competitiveness. At the same time, they claim to have the interests of British industry and commerce at heart.
In areas where the horticulture industry is important in employment terms, the levy is disproportionately important. When the Financial Secretary argues the case for the levy, he will put yet another nail in the coffin of the British horticulture industry. We and the industry will know who is responsible.
In Standing Committee, I put on the record, enterprise by enterprise, a list of small-scale businesses. The Chancellor said this afternoon that small-scale businesses were the engine room of our economy. It seems to me that the Government are stripping out the oil and the pistons, and they will soon be getting rid of the operator because the engine-room companies in the horticulture industry will have to bear a substantial extra burden which, as I said in Standing Committee, they cannot and should not bear. Even at this late stage, I make this appeal on behalf of the British horticulture industry. Instead of providing little tiny bits of help which do not address the issue, the Minister should recognise that the horticulture industry is genuinely a special case and find some way of absenting it from more than the proposed 50 per cent. reduction.

Mr. Christopher Gill: I shall speak briefly in support of the amendment. I find the case for the climate change levy quite unsatisfactory. We keep hearing from Ministers that it will be revenue neutral. It may be revenue neutral as far as the Government are concerned, but it certainly will not be for individual businesses. Although it could be claimed to be revenue neutral in respect of companies that are eligible for the rebate and employ a large number of people, as my right hon. Friend the Member for Fylde (Mr. Jack) has just said, it will be far from revenue neutral for companies that employ very few staff.
The hon. Member for Kingston and Surbiton (Mr. Davey) said that the climate change levy would not affect competitiveness. That is absolute bunkum. Any tax affects competitiveness. Last Thursday at Question Time, the Minister for Energy and Competitiveness in Europe tried to maintain that the levy would not affect competitiveness. The Government are living in cloud cuckoo land if they think that they can impose a tax that will not affect British businesses.
In effect, the climate change levy will impose a poll tax on employment, and its effect will be to export production that is currently carried out in Britain, and the jobs associated with it, to other parts of the world where environmental considerations are ignored. My right hon. Friend the Member for Fylde rightly mentioned other European countries where there is no equivalent of the climate change levy, or if there is, it is not being imposed in such a dramatic way.
As was made clear on Second Reading, there are anomalies. For example, in several industries the prime producer is eligible for the 80 per cent. rebate, but processors in the same industry are not. That is totally unacceptable. The Liberal Democrat spokesman was good enough to admit that the tax was complicated. To my mind, that makes it a bad tax in any case, but the Government's assumption that companies and employers are not doing their level best to reduce the cost of energy is equally spurious. Everyone in business today realises that they have to keep bearing down on overheads. As energy is one of the most significant overheads, companies automatically bear down on energy costs without the incentive of the proposed tax.
This is a bad tax. It is a poll tax on jobs in this country, and I shall support the amendment.

Mr. Simon Thomas: I say, with much regret, that Wales is plenty wet enough for hydroelectricity schemes. That is why, in my constituency, I have the largest hydro-electricity scheme in Wales and England.
I support the comments made by the hon. Members for Galloway and Upper Nithsdale (Mr. Morgan) and for Hazel Grove (Mr. Stunell). Hydro-electricity has been overlooked in the workings of the climate change levy, and I hope that the Government will review how the tax impacts on hydro-electricity schemes and the renewable energy that comes from it.
However, I hope that the Government will resist the amendment. I am sure that they need no encouragement from me to do that. The hon. Member for West Dorset (Mr. Letwin) correctly pointed out that the rate of carbon dioxide emissions was going down, but he did not go on to say that the emissions are expected to rise significantly again after 2005. That is not in the Red Book, but it is in the Government's predictions. That has been borne out by the royal commission on emissions, which issued its report last month.

Mr. Swayne: Part of that rise may be consequent on the strangling to death of British horticulture and the importation of the products that it previously produced by air, with a great use of aviation fuel, which is one of the most serious carbon dioxide pollutants.

Mr. Thomas: I accept the hon. Gentleman's latter point, but his former point was somewhat peripheral to the argument, although I support the point made by the right hon. Member for Fylde (Mr. Jack) about the horticulture industry. There is an obvious carbon-negative factor that should be taken into account in the workings of the tax.
The tax is complicated, and it is right to call it a tax, not a levy. However, none of the complicated difficulties with it persuade me to oppose it in principle. In fact, having heard the comments of the Opposition Front-Bench Treasury spokesman, I feel even more strongly that we should put the tax through as a marker of the changes that we need to see in this country. The amendment tabled by the Opposition is poorly drafted from a party that purports to want to form a Government at some stage in the countries of the United Kingdom. It shows a lack of understanding of what the Kyoto targets mean and of how we can move to achieve that international obligation.
The time scale for the changes that we want to see in the environment and in carbon dioxide emissions is between 15 and 25 years. The magic year 2010 has been mentioned and 2020 is increasingly coming on the horizon in working out the targets. Legislation that pivots around some environmental blip from year to year would send out a tremendously bad signal to business, the public at large and our international partners.
The poor understanding within the Conservative party is reflected in the way in which it has approached the issue. It has not come up with an alternative scheme for meeting the Kyoto targets. Many of us who have serious doubts about the complexity of the climate change levy and what it leaves in and leaves out would have liked to hear alternative methods of achieving the Kyoto targets, but I regret to say that that has not come forward from the Opposition party.

Mr. Letwin: Is the hon. Gentleman seriously advancing the proposition that lifting the gas moratorium would not do more to achieve the targets than this tax?

Mr. Thomas: It would in the very short term, but we are talking about a 25-year period. As the hon. Gentleman knows, there would not be the natural gas to pump into stations in 25 years' time. We have to start planning now for the changes that we want to see in 20 or 25 years. That is why the right hon. Member for Fylde was correct in referring to biomass and short coppice rotation. Elephant grass, willow or whatever might be grown, but that is not an answer to the situation that we are in now. I spent three hours with a biomass group in my constituency on Monday morning discussing how we could get a biomass plant established in the area. The members of the group were arguing strongly that they need a lead-in of four to seven years for the coppice rotation to take effect before the plant can be efficient.
10.30 pm
I say to those on the Government Front Bench that I hope that Energy Ministers will be informed that there are still pieces missing in the Government's picture on renewables, especially in terms of renewable energy and the price that may be involved. I understand that the Department of Trade and Industry will be discussing next week how it might address the issue. It is part of meeting our climate change obligations that the left hand knows what the right hand is doing. The Government are pressing on with the levy without necessarily bringing in all the other benefits that need to come on stream. For that reason, they are giving the impression that they are introducing a tax without the benefits that should accompany it. It is incumbent upon them to work hard over the summer to produce for industry ideas about the use of renewable energy that will fit the jigsaw and produce a much more complete picture.
The Government's view is at least robust, if nothing else, and linked to environmental aims. I welcome the later amendments on combined heat and power. I hope that they will improve a deficiency in that area.
I hope that everyone in the House accepts that there is climate change and that it brings problems. Certainly the occupants of the Conservative Front Bench are starting to

accept that, although they do not accept the levy. However, climate change demands vision and political bravery. It is regrettable that, on the whole, we politicians are short-termist. We do not like to plan ahead for 10 or 15 years, because on the whole we shall not then be around to reap the benefits. However, the Government have shown a little bravery in this context and I hope that they will resist the amendment, stick to their guns and review the workings of the climate change levy to ensure that some of the other points that have been raised are taken into account, particularly the future of renewable energy.

Mr. Timms: The hon. Member for West Dorset (Mr. Letwin) asked me to withdraw the tax. I wish I could withdraw the huge problem of climate change which faces the world and requires an effective response throughout the world. The hon. Gentleman said in an intervention on the hon. Member for Hazel Grove (Mr. Stunell) that it might be a problem. Well, it is a problem. That is the reality that we face, and we are taking effective action to respond to it.
The hon. Member for West Dorset seems to be labouring under some straightforward misapprehensions, and in a brief contribution I shall attempt to correct them. He said that the problem could be solved alternatively by lifting the restrictive consents policy. We have announced that that policy will be lifted, and that is reflected in chart 6.2 of section 6 of the Red Book about the projections for carbon dioxide emissions. The levy is needed in addition to that to meet our objectives.
Annual emissions are expected to be about 15 per cent. below 1990 levels this year, but it is forecast that they will start rising again as a result of continuing economic growth and because of factors such as the decommissioning of nuclear power stations. The projected increase in emissions takes into account the expected impact of the levy. That is why it is vital that the levy and all the other measures within the climate change programme are implemented in full to prevent any slippage.
The hon. Member for Ceredigion (Mr. Thomas) rightly said in an effective contribution that a wide range of measures is required, of which the levy is one.

Mr. Letwin: If the Minister believes—I am sure that he is right—that the decommissioning on a substantial scale of nuclear power stations will have a significant effect on emissions, why is it that the so-called climate change levy does not exempt power produced from nuclear stations?

Mr. Timms: I do not know whether it is the policy of the Conservative party to promote new nuclear development. We know what is happening to nuclear power over the next 10 or 15 years, and that is one of the factors that we should take into account in projecting the future of carbon dioxide emissions. It is not a matter, as the amendment suggests, of watching some statistics to check whether we might need to take action to deal with climate change. That is wilfully to ignore the seriousness of the problem of climate change when, in reality, urgent action is imperative.
The hon. Member for Galloway and Upper Nithsdale (Mr. Morgan) asked about hydro-electric plants with a capacity of more than 10 MW. He is right to say that


the exemption for renewables in the climate change levy applies to hydro schemes with a capacity of less than 10 MW. That is because we want to promote new renewable energy sources. There is a great deal of scope for new forms of renewable energy generation, and that is what the exemption is designed to promote. We want to incentivise new activities rather than subsidising existing activities that have competed successfully with other forms of generation for a long time.
I have had a number of discussions on the issue with the organisation that the hon. Gentleman mentioned and others, and no one has suggested to me, as the hon. Member for Hazel Grove did, that big hydro-electric operators will shut down when the levy comes into effect. It would be wrong to suggest that. I recognise that there is a concern about a band of hydro-electric schemes, perhaps in the 10 to 25 MW capacity range, that, at some point in the future, they may want to carry out refurbishment, and that may well be a point that needs to be considered at that stage. But we are right to focus the exemption for renewable generation on new forms of renewable energy so that we can substantially increase the extent of that.

Mr. Stunell: Will the Minister give way?

Mr. Timms: I shall not give way again as I need to make some progress.
My hon. Friend the Member for Rotherham (Mr. MacShane) raised some questions about electric arc furnaces for steel. I do not anticipate the problems that he fears because the 80 per cent reduction will be available. There will also be significant reductions in the price of electricity because of the new electricity trading arrangements. There is not an amendment on the subject before the House tonight, so the Bill represents the position that will prevail when the levy takes effect next April, but I shall be glad to meet my hon. Friend and others to discuss the concerns of the steel industry.
To the right hon. Member for Fylde (Mr. Jack), I would say that we have fully recognised the special case of horticulture. The 50 per cent. concession that we have announced is unique. No other industry will enjoy the benefit of that, and that is being extended through a later group of amendments tonight to include lighting and heating. Belgium is working up an energy tax, and I anticipate that most, if not all, of the EU states will, in due course, need to introduce such a measure to meet their Kyoto objective. That trend is clear.
As I have said, I welcome the support of the hon. Member for Ceredigion. He is right to recognise the importance of taking the step that is contained in the climate change levy. We are permanently improving energy efficiency across the business and private sectors, providing a continuing incentive to innovation aimed at improving energy use.
The burdens on business will be kept to a minimum. I repeat what I am sure I have already said many times to the hon. Member for West Dorset, that we are recycling all the revenues from the levy in full to business through equivalent cuts in employer national insurance contributions and schemes to promote energy efficiency, including additional support for renewable sources of energy. There is no net gain to the Exchequer from the levy package.
If the projection of an increase in carbon dioxide emissions after 2000 is correct, the amendment could delay the onset of a levy only until 2002, but we need the levy in our fight to reduce greenhouse gas emissions. Any delay in implementation of whatever duration would prove deeply damaging to our aims. The problem of climate change remains a great challenge and a challenge that the Government are prepared to face up to. I am pleased that, on this occasion at least, the hon. Member for Hazel Grove can support us in taking the levy forward.
I have one last point. The hon. Member for West Dorset talked about emissions trading as an alternative to the levy. It is not an alternative; it is a complement. We are taking forward an emissions trading scheme.
The amendment is inconsistent with our key long-term goal of reducing greenhouse gas emissions and improving energy efficiency in business. I urge the House to reject it.

Mr. Letwin: We have tried to save the Government from themselves. Alas, we have failed. Although this is sad for the country, it is marvellous politically. We look forward with glee to the moment when literally hundreds of thousands of businesses up and down the country discover that they will be subject to this ghastly tax, and we look forward to the Financial Secretary's doing little else for months than dealing with them.

Question put, That the amendment be made:—

The House divided: Ayes 127, Noes 345.

Division No. 277]
[10.40 pm

AYES


Amess, David
Fraser, Christopher


Ancram, Rt Hon Michael
Garnier, Edward


Arbuthnot, Rt Hon James
Gibb, Nick


Baldry, Tony
Gill, Christopher


Beggs, Roy
Gillan, Mrs Cheryl


Bercow, John
Gorman, Mrs Teresa


Beresford, Sir Paul
Green, Damian


Boswell, Tim
Greenway, John


Bottomley, Peter (Worthing W)
Grieve, Dominic


Bottomley, Rt Hon Mrs Virginia
Hamilton, Rt Hon Sir Archie


Brazier, Julian
Hammond, Philip


Brooke, Rt Hon Peter
Hawkins, Nick


Browning, Mrs Angela
Hayes, John


Bruce, Ian (S Dorset)
Heald, Oliver


Burns, Simon
Hogg, Rt Hon Douglas


Butterfill, John
Horam, John


Cash, William
Howard, Rt Hon Michael


Chapman, Sir Sydney (Chipping Barnet)
Howarth, Gerald (Aldershot)



Jack, Rt Hon Michael


Chope, Christopher
Jackson, Robert (Wantage)


Clappison, James
Jenkin, Bernard


Clifton-Brown, Geoffrey
Key, Robert


Collins, Tim
King, Rt Hon Tom (Bridgwater)


Cormack, Sir Patrick
Kirkbride, Miss Julie


Cran, James
Laing, Mrs Eleanor


Curry, Rt Hon David
Lait, Mrs Jacqui


Davies, Quentin (Grantham)
Leigh, Edward


Davis, Rt Hon David (Haltemprice)
Letwin, Oliver


Donaldson, Jeffrey
Lewis, Dr Julian (New Forest E)


Dorrell, Rt Hon Stephen
Lidington, David


Evans, Nigel
Lilley, Rt Hon Peter


Faber, David
Lloyd, Rt Hon Sir Peter (Fareham)


Fabricant, Michael.
Loughton, Tim


Fallon, Michael
Luff, Peter


Flight, Howard
MacGregor, Rt Hon John


Forth, Rt Hon Eric
McIntosh, Miss Anne


Fowler, Rt Hon Sir Norman
MacKay, Rt Hon Andrew


Fox, Dr Liam
Maclean, Rt Hon David






McLoughlin, Patrick
Stanley, Rt Hon Sir John


Madel, Sir David
Steen, Anthony


Major, Rt Hon John
Streeter, Gary


Malins, Humfrey
Swayne, Desmond


Maples, John
Syms, Robert


Mawhinney, Rt Hon Sir Brian
Tapsell, Sir Peter


May, Mrs Theresa
Taylor, Ian (Esher & Walton)


Norman, Archie
Taylor, John M (Solihull)


O'Brien, Stephen (Eddisbury)
Taylor, Sir Teddy


Ottaway, Richard
Townend, John


Paice, James
Tredinnick, David


Paterson, Owen
Trend, Michael


Prior, David
Tyrie, Andrew


Randall, John
Viggers, Peter


Robathan, Andrew
Waterson, Nigel


Robertson, Laurence
Whitney, Sir Raymond


Roe, Mrs Marion (Broxbourne)
Whittingdale, John


Ross, William (E Lond'y)
Wilkinson, John


Ruffley, David
Willetts, David


St Aubyn, Nick
Wilshire, David


Sayeed, Jonathan
Winterton, Mrs Ann (Congleton)


Shephard, Rt Hon Mrs Gillian
Winterton, Nicholas (Macclesfield)


Shepherd, Richard
Yeo, Tim


Simpson, Keith (Mid-Norfolk)
Young, Rt Hon Sir George


Soames, Nicholas



Spelman, Mrs Caroline
Tellers for the Ayes:


Spicer, Sir Michael
Mr. Stephen Day and


Spring, Richard
Mr. Peter Atkinson.




NOES


Abbott, Ms Diane
Chaytor, David


Adams, Mrs Irene (Paisley N)
Chidgey, David


Ainger, Nick
Chisholm, Malcolm


Ainsworth, Robert (Cov'try NE)
Clapham, Michael


Allen, Graham
Clark, Rt Hon Dr David (S Shields)


Anderson, Janet (Rossendale)
Clark, Paul (Gillingham)


Ashton, Joe
Clarke, Charles (Norwich S)


Atkins, Charlotte
Clarke, Rt Hon Tom (Coatbridge)


Austin, John
Clelland, David


Ballard, Jackie
Clwyd, Ann


Banks, Tony
Coaker, Vernon


Barnes, Harry
Coffey, Ms Ann


Barron, Kevin
Cohen, Harry


Battle, John
Coleman, Iain


Bayley, Hugh
Colman, Tony


Begg, Miss Anne
Connarty, Michael


Beith, Rt Hon A J
Corbett, Robin


Benn, Hilary (Leeds C)
Corbyn, Jeremy


Benton, Joe
Corston, Jean


Bermingham, Gerald
Cousins, Jim


Berry, Roger
Cox, Tom


Betts, Clive
Cranston, Ross


Blackman, Liz
Crausby, David


Blears, Ms Hazel
Cryer, Mrs Ann (Keighley)


Blizzard, Bob
Cryer, John (Hornchurch)


Boateng, Rt Hon Paul
Cummings, John


Borrow, David
Cunningham, Rt Hon Dr Jack (Copeland)


Bradley, Keith (Withington)



Bradley, Peter (The Wrekin)
Cunningham, Jim (Cov'try S)


Bradshaw, Ben
Cunningham, Ms Roseanna (Perth)


Brand, Dr Peter



Brown, Russell (Dumfries)
Curtis-Thomas, Mrs Claire


Browne, Desmond
Dalyell, Tam


Bruce, Malcolm (Gordon)
Darling, Rt Hon Alistair


Burden, Richard
Darvill, Keith


Burgon, Colin
Davey, Edward (Kingston)


Burnett, John
Davey, Valerie (Bristol W)


Butler, Mrs Christine
Davidson, Ian


Caborn, Rt Hon Richard
Davies, Rt Hon Denzil (Llanelli)


Campbell-Savours, Dale
Davis, Rt Hon Terry (B'ham Hodge H)


Cann, Jamie



Caplin, Ivor
Dawson, Hilton


Casale, Roger
Dean, Mrs Janet


Caton, Martin
Denham, John


Cawsey, Ian
Dismore, Andrew


Chapman, Ben (Wirral S)
Dobbin, Jim





Doran, Frank
Jones, Ms Jenny (Wolverh'ton SW)


Dowd, Jim



Drew, David
Jones, Jon Owen (Cardiff C)


Dunwoody, Mrs Gwyneth
Jones, Dr Lynne (Selly Oak)


Eagle, Angela (Wallasey)
Jones, Martyn (Clwyd S)


Eagle, Maria (L'pool Garston)
Keeble, Ms Sally


Edwards, Huw
Keen, Alan (Feltham & Heston)


Efford, Clive
Keen, Ann (Brentford & Isleworth)


Ellman, Mrs Louise
Kennedy, Jane (Wavertree)


Ennis, Jeff
Khabra, Piara S


Ewing, Mrs Margaret
Kidney, David


Fearn, Ronnie
Kilfoyle, Peter


Field, Rt Hon Frank
King, Andy (Rugby & Kenilworth)


Fisher, Mark
Kirkwood, Archy


Fitzpatrick, Jim
Kumar, Dr Ashok


Flint, Caroline
Ladyman, Dr Stephen


Flynn, Paul
Lammy, David


Foster, Michael Jabez (Hastings)
Lawrence, Mrs Jackie


Foster, Michael J (Worcester)
Laxton, Bob


Fyfe, Maria
Lepper, David


Galloway, George
Leslie, Christopher


Gardiner, Barry
Levitt, Tom


George, Andrew (St Ives)
Lewis, Ivan (Bury S)


Gerrard, Neil
Lewis, Terry (Worsley)


Gibson, Dr Ian
Liddell, Rt Hon Mrs Helen


Gidley, Sandra
Linton, Martin


Gilroy, Mrs Linda
Livsey, Richard


Godsiff, Roger
Lloyd, Tony (Manchester C)


Goggins, Paul
Lock, David


Golding, Mrs Llin
Love, Andrew


Gordon, Mrs Eileen
McAllion, John


Gorrie, Donald
McAvoy, Thomas


Griffiths, Jane (Reading E)
McCabe, Steve


Grogan, John
McCafferty, Ms Chris


Hain, Peter
McCartney, Rt Hon Ian (Makerfield)


Hall, Mike (Weaver Vale)



Hall, Patrick (Bedford)
McDonagh, Siobhain


Hamilton, Fabian (Leeds NE)
McDonnell, John


Hancock, Mike
McFall, John


Hanson, David
McGuire, Mrs Anne


Harman, Rt Hon Ms Harriet
McIsaac, Shona


Harris, Dr Evan
McKenna, Mrs Rosemary


Harvey, Nick
Mackinlay, Andrew


Heal, Mrs Sylvia
McNamara, Kevin


Healey, John
McNulty, Tony


Heath, David (Somerton & Frome)
MacShane, Denis


Henderson, Doug (Newcastle N)
Mactaggart, Fiona


Henderson, Ivan (Harwich)
McWalter, Tony


Hepburn, Stephen
McWilliam, John


Heppell, John
Mahon, Mrs Alice


Hesford, Stephen
Marsden, Gordon (Blackpool S)


Hewitt, Ms Patricia
Marshall, David (Shettleston)


Hinchliffe, David
Marshall, Jim (Leicester S)


Hodge, Ms Margaret
Martlew, Eric


Home Robertson, John
Meale, Alan


Hood, Jimmy
Merron, Gillian


Hopkins, Kelvin
Michael, Rt Hon Alun


Howarth, Alan (Newport E)
Michie, Bill (Shef'ld Heeley)


Howells, Dr Kim
Michie, Mrs Ray (Argyll & Bute)


Hoyle, Lindsay
Miller, Andrew


Hughes, Ms Beverley (Stretford)
Mitchell, Austin


Hughes, Simon (Southwark N)
Moffatt, Laura


Humble, Mrs Joan
Moonie, Dr Lewis


Hurst, Alan
Moore, Michael


Hutton, John
Moran, Ms Margaret


Iddon, Dr Brian
Morgan, Alasdair (Galloway)


Illsley, Eric
Morgan, Ms Julie (Cardiff N)


Jackson, Ms Glenda (Hampstead)
Morley, Elliot


Jackson, Helen (Hillsborough)
Morris, Rt Hon Ms Estelle (B'ham Yardley)


Jamieson, David



Jenkins, Brian
Mountford, Kali


Johnson, Miss Melanie (Welwyn Hatfield)
Mowlam, Rt Hon Marjorie



Mudie, George


Jones, Rt Hon Barry (Alyn)
Mullin, Chris


Jones, Mrs Fiona (Newark)
Murphy, Rt Hon Paul (Torfaen)


Jones, Helen (Warrington N)
Naysmith, Dr Doug






O'Brien, Bill (Normanton)
Steinberg, Gerry


O'Hara, Eddie
Stevenson, George


Olner, Bill
Stewart, David (Inverness E)


O'Neill, Martin
Stewart, Ian (Eccles)


Öpik, Lembit
Stinchcombe, Paul


Organ, Mrs Diana
Stoate, Dr Howard


Osborne, Ms Sandra
Strang, Rt Hon Dr Gavin


Palmer, Dr Nick
Stringer, Graham


Pearson, Ian
Stuart, Ms Gisela


Pickthall, Colin
Stunell, Andrew


Plaskitt, James
Taylor, Rt Hon Mrs Ann (Dewsbury)


Pollard, Kerry



Pond, Chris
Taylor, David (NW Leics)


Pope, Greg
Temple-Morris, Peter


Pound, Stephen
Thomas, Gareth (Clwyd W)


Prentice, Ms Bridget (Lewisham E)
Thomas, Gareth R (Harrow W)


Prentice, Gordon (Pendle)
Thomas, Simon (Ceredigion)


Primarolo, Dawn
Timms, Stephen


Prosser, Gwyn
Todd, Mark


Purchase, Ken
Touhig, Don


Quin, Rt Hon Ms Joyce
Trickett, Jon


Quinn, Lawrie
Truswell, Paul


Radice, Rt Hon Giles
Turner, Dennis (Wolverh'ton SE)


Rammell, Bill
Turner, Dr Desmond (Kemptown)


Rapson, Syd
Turner, Dr George (NW Norfolk)


Reid, Rt Hon Dr John (Hamilton N)
Turner, Neil (Wigan)


Rendel, David
Twigg, Derek (Halton)


Rooker, Rt Hon Jeff
Tyler, Paul


Rooney, Terry
Tynan, Bill



Vaz, Keith


Ross, Ernie (Dundee W)
Vis, Dr Rudi


Rowlands, Ted
Walley, Ms Joan


Roy, Frank
Ward, Ms Claire


Ruane, Chris
Wareing, Robert N


Ruddock, Joan
Watts, David


Russell, Bob (Colchester)
Webb Steve


Russell, Ms Christine (Chester)
Welsh, Andrew


Ryan, Ms Joan
Whitehead, Dr Alan


Salter, Martin
Wicks, Malcolm


Sanders, Adrian
Williams, Rt Hon Alan (Swansea W)


Sarwar, Mohammad



Savidge, Malcolm
Williams, Alan W (E Carmarthen)


Sawford, Phil
Williams, Mrs Betty (Conwy)


Sedgemore, Brian
Willis, Phil


Shaw, Jonathan
Wills, Michael


Sheerman, Barry
Winnick, David


Shipley, Ms Debra
Winterton, Ms Rosie (Doncaster C)


Short, Rt Hon Clare
Woodward, Shaun


Simpson, Alan (Nottingham S)
Woolas, Phil


Skinner, Dennis
Worthington, Tony


Smith, Miss Geraldine (Morecambe & Lunesdale)
Wray, James



Wright, Anthony D (Gt Yarmouth)


Smith, John (Glamorgan)
Wright, Tony (Cannock)


Smith, Llew (Blaenau Gwent)
Wyatt, Derek


Smith, Sir Robert (W Ab'd'ns)



Snape, Peter
Tellers for the Noes:


Soley, Clive
Mr. Gerry Sutcliffe and


Southworth, Ms Helen
Mr. Kevin Hughes.

Question accordingly negatived.

Schedule 6

CLIMATE CHANGE LEVY

Amendments made: No. 16, in page 138, line 27, leave out sub-paragraph (2).

No. 17, in page 138, line 37, leave out subparagraph (5).

No. 18, in page 142, line 10, leave out subparagraph (2).

No. 19, in page 142, line 36, at end insert—
'except where he is acting otherwise than for purposes connected with the carrying on of activities authorised by the exemption.

( ) Sub-paragraph (5) applies subject to—

(a) any direction under paragraph 148A(1), and
(b) any regulations under paragraph 148A(2).'.

No. 20, in page 142, line 36, at end insert—

'Exemption: supplies (other than self-supplies) to combined heat and power stations

14A.—(1) A supply of a taxable commodity to a person is exempt from the levy if—

(a) the commodity is to be used by that person in—

(i) a fully exempt combined heat and power station, or
(ii) a partly exempt combined heat and power station,
in producing any outputs of the station, and

(b) the supply is not a supply of electricity that is deemed to be made under paragraph 22(3).

For this purpose "outputs" has the meaning given by paragraph 147(7).
(2) Where—

(a) a supply of a taxable commodity to a person would (apart from this sub-paragraph) be exempted in full by subparagraph (1), and
(b) at the time the supply is made, the efficiency percentage for the combined heat and power station in which the commodity is to be used by that person is less than the threshold efficiency percentage for the station,
sub-paragraph (1) only exempts the relevant fraction of the supply.

(3) For the purposes of sub-paragraph (2), the "relevant fraction" of a supply of a taxable commodity that is to be used in a combined heat and power station is the fraction—

(a) whose numerator is the efficiency percentage for the station at the time the supply is made, and
(b) whose denominator is the threshold efficiency percentage for the station at that time.

(4) For the purposes of this paragraph—

(a) the "threshold efficiency percentage" for a combined heat and power station is the percentage set as the threshold efficiency percentage for the station by regulations made by the Treasury;
(b) the "efficiency percentage" for a combined heat and power station is the percentage stated as the efficiency percentage for the station in a certificate in force in respect of the station under paragraph 147 (certificate given by Secretary of State that station is fully or partly exempt).

(5) Paragraph 147A confers power to make provision by regulations for determining the efficiency percentage to be stated in a certificate under paragraph 147.'.

No. 21, in page 150, line 13, leave out from "5(2)" to end of line 14 and insert—
'(partly exempt combined heat and power stations).'.

No. 22, in page 156, line 47, after "it, " insert—
'( ) in the lighting, for the growth of horticultural produce primarily with a view to the production of horticultural produce for sale, of any building or structure, '.

No. 23, in page 159, line 34, leave out paragraph (d) and insert—
'(d) to which a representative of each facility to which it applies is a party,'.

No. 24, in page 159, line 43, at end insert—
'( ) In this paragraph and paragraph 47 "representative", in relation to a facility to which an agreement applies, means—

(a) the person who is the operator of the facility at—

(i) the time the agreement is entered into, or
(ii) if later, the time the facility last became a facility to which the agreement applies,

or

(b) a person authorised by that operator to agree to the facility being a facility to which the agreement applies.'.

No. 25, in page 160, line 17, leave out paragraph (d) and insert—
'(d) to which a representative of each facility to which it applies is a party.'.

No. 26, in page 160, line 30, leave out paragraph (e) and insert—
'(e) to which a representative of each facility to which it applies is a party.'.

No. 27, in page 160, line 44, at end insert—
'(1A) Where a climate change agreement (the "new agreement") applies to a facility to which another climate change agreement previously applied, the first certification period specified by the new agreement for the facility shall be—

(a) a period beginning as provided by sub-paragraph (1), or
(b) a period that—

(i) begins earlier than that, and
(ii) is a period that was a certification period specified for the facility by any climate change agreement that previously applied to the facility.
A period such as is mentioned in paragraph (b) includes a period beginning, or beginning and ending, before the date on which the new agreement, so far as relating to the facility, is expressed to take effect.'.

No. 28, in page 161, line 3, leave out—
'by the agreement for the facility'

and insert—
'for the facility by the agreement or by a climate change agreement that previously applied to the facility'.

No. 29, in page 161, line 5, after "agreement" insert "in question".

No. 30, in page 161, line 10, at end insert—
'( ) For the purposes of sub-paragraphs (1A) and (2), the circumstances in which a facility to which a climate change agreement applies is one to which another such agreement previously applied include those where the facility is—

(a) a part, or a combination of parts, of a facility to which another such agreement previously applied,
(b) a combination of two or more such facilities,
(c) any combination of parts of such facilities, or
(d) any combination of such facilities and parts of such facilities.'.

No. 31, in page 162, line 4, leave out from first "of' to end of line 5 and insert—
'taxable commodities, and of any other commodities specified in the regulations. subject to each of those intentions are such that any conditions specified in the regulations are satisfied.'.

No. 32, in page 162, line 15, leave out from first "of' to end of line 16 and insert—
'taxable commodities, and of any other commodities specified in the regulations, subject to each of those intentions are such that any conditions specified in the regulations are satisfied.'.

No. 33, in page 162, line 18, leave out "taxable".
No. 34, in page 163, line 4, leave out "output" and insert "input".

No. 35, in page 163, line 7, leave out "output" and insert "input".
No. 36, in page 191, line 8, leave out "and 17" and insert ", 17 and 20".
No. 37, in page 202, line 39, at end insert—
'( ) the giving, withdrawal or variation of a utility direction under paragraph 148A(1);'.

No. 38, in page 213, line 12, leave out from beginning to "for" in line 13 and insert—
'Where the principal is a person falling within any of paragraphs (a) to (c) of sub-paragraph (1), the principal shall notify the Commissioners in writing of the name of any person designated by the principal'.

No. 39, in page 216, line 12, leave out from "instrument" to "under" in line 15 and insert "that—

(a) contains regulations made under this Schedule, and
(b) is not subject to a requirement that a draft of the instrument be laid before Parliament and approved by a resolution of the House of Commons,
shall be subject to annulment in pursuance of a resolution of the House of Commons.
(3) A statutory instrument that contains (whether alone or with other provisions) regulations'.

No. 40, in page 216, line 15, leave out "6(2), ".
No. 41, in page 216, line 15, after "14(3), " insert "14A(4)(a), ".
No. 42, in page 216, line 16, leave out "or 147" and insert ", 147(3A) or 147A".
No. 43, in page 216, line 16, after "147" insert "or 148A(2)".
No. 44, in page 216, line 16, leave out "unless a draft of and insert—
'shall not be made unless a draft of the statutory instrument containing'.
No. 45, in page 217, line 10, after "148(2)" insert "(but see paragraph 148(4))".
No. 46, in page 217, line 13, after "148(3)" insert "(but see paragraph 148(4))".
No. 47, in page 217, line 22, leave out "6(2), ".
No. 48, in page 217, line 22, leave out "147" and insert "147(3A)".
No. 49, in page 218, line 8, leave out from "in" to end of line 9 and insert—
'respect of which there is in force a certificate (a "full-exemption certificate")—

(a) given by the Secretary of State,
(b) stating that the station is a fully exempt combined heat and power station for the purposes of the levy, and
(c) complying with sub-paragraph (3C) and (so far as applicable) any provision made by regulations under sub-paragraph (8).'.

No. 50, in page 218, line 11, leave out from "station" to end of line 16 and insert—
'in respect of which there is in force a certificate (a "part-exemption certificate")—

(a) given by the Secretary of State,
(b) stating that the station is a partly exempt combined heat and power station for the purposes of the levy, and
(c) complying with sub-paragraph (3C) and (so far as applicable) any provision made by regulations under sub-paragraph (8).




(3A) The Secretary of State shall give a full-exemption certificate in respect of a combined heat and power station where—

(a) an application is made for a certificate under this paragraph in respect of the station, and
(b) it appears to him that such conditions as may be prescribed are satisfied in relation to the station.

For this purpose "prescribed" means prescribed by regulations made by the Treasury.
(3B) The Secretary of State shall give a part-exemption certificate in respect of a combined heat and power station where—

(a) an application is made for a certificate under this paragraph in respect of the station, and
(b) his decision on the application is to refuse to give a full-exemption certificate.


(3C) A full-exemption or part-exemption certificate given in respect of a combined heat and power station shall state the percentage that, for the purposes of paragraph 14A, is the efficiency percentage for the station determined in accordance with any regulations under paragraph 147A.'.
No. 51, in page 218, line 17, leave out "(2)" and insert "(3A)".
No. 52, in page 218, line 22, leave out from beginning to end of line 23 and insert—
'A condition prescribed under sub—paragraph (3A) may, in particular, relate to any of the following—'.
No. 53, in page 218, line 32, at end insert—
'(8) The Secretary of State may by regulations make provision for or about—

(a) certificates under this paragraph;
(b) applications for such certificates;
(c) the information that is to accompany such applications.
(9) The provision that may be made by virtue of sub—paragraph (8)(a) includes in particular—

(a) provision in respect of the periods for which certificates under this paragraph are to be in force;
(b) provision for the (non-retrospective) variation or revocation of such certificates.

Determination of efficiency percentages for combined heat and
power stations

147A.—(1) The Treasury may by regulations make provision for determining the percentage that is to be stated in a certificate under paragraph 147 as the efficiency percentage for a combined heat and power station.

(2) Regulations under this paragraph may, in particular, include—

(a) provision in respect of methods of calculating efficiency percentages;
(b) provision in respect of the measurements and data to be used in calculating such percentages;
(c) provision in respect of the procedures for determining such percentages;
(d) provision in respect of verifying—

(i) calculations by which such percentages are produced, and
(ii) measurements and data used in such calculations;
(e) provision that, so far as framed by reference to any document, is framed by reference to that document as from time to time in force.

(3) In making provision under this paragraph, the Treasury must have regard to the object of securing that the efficiency percentage for a combined heat and power station is (save for any appropriate adjustments) a percentage that reflects a fair assessment of the efficiency with which commodities are transformed in the station into electricity or motive power.'.

No. 54, in page 218, line 49, at end insert—

'(4) Sub-paragraphs (1) to (3) have effect subject to—

(a) any direction under paragraph 148A(1), and
(b) any regulations under paragraph 148A(2).

Person treated as, or as not being, a utility

148A.—(1) The Commissioners may by direction (a "utility direction") make, in respect of a person (or persons) specified in the direction, provision authorised by sub-paragraph (3).

(2) The Treasury may by regulations ("utility regulations") make, in respect of any person of a description specified in the regulations, provision authorised by sub-paragraph (3).

(3) The provision authorised by this sub-paragraph is provision for—

(a) a person who is an unregulated electricity supplier to be treated for levy purposes as being an electricity utility;
(b) a person who is an unregulated gas supplier to be treated for levy purposes as being a gas utility;
(c) a person who is an electricity utility to be treated for levy purposes as not being an electricity utility;
(d) a person who is a gas utility to be treated for levy purposes as not being a gas utility.

(4) References in sub-paragraph (3) to provision for a person to be treated in a particular way for "levy purposes" are to provision for him to be treated in that way for—

(a) the purposes of this Schedule, or
(b) such of those purposes as are specified in the direction or regulations by which the provision is made.

(5) The power to make any provision by a utility direction or utility regulations may be exercised so that the provision applies in relation to a person only to an extent specified in, or determined under, the direction or regulations.

(6) A utility direction cannot take effect until it has been—

(a) given by the Commissioners to each person in respect of whom it makes provision, and
(b) published by the Commissioners.

(7) Paragraph 145(7)(b) and (c) applies to the power to make provision by a utility direction as to a power to make provision by regulations.

(8) In this paragraph—

"unregulated electricity supplier" means a person who—

(a) makes supplies of electricity, and
(b) is not an electricity utility;
"unregulated gas supplier" means a person who—

(a) makes supplies of gas that is in a gaseous state and is of a kind supplied by a gas utility, and
(b) is not a gas utility.'.
No. 55, in page 219, line 44, leave out—
'in part to the Authority and in part to the Gas and Electricity Consumer Council)'
and insert—
'to the Authority) or abolished'.
No. 56, in page 220, line 2, leave out—
'in part to the Authority and in part to the Gas and Electricity Consumer Council)'
and insert—
'to the Authority) or abolished'.—[Mr. Timms.]

Clause 39

GIFT AID PAYMENTS BY INDIVIDUALS

Mr. Burnett: I beg to move amendment No. 101, in page 25, line 39, leave out—
'donor shall be assessable and'
and insert—
'charity receiving the gift shall be'.

Mr. Deputy Speaker (Mr. Michael Lord): With this it will be convenient to discuss amendment No. 102, in page 25, line 41, at end insert—
'as if it were being assessed as the donor.'.

Mr. Burnett: We have also discussed these amendments at length with the Chartered Institute of Taxation's low incomes tax reform group.
We warmly welcome the new rules for relief for charitable giving, but in one major respect they do not go far enough. The only people whose gifts will not qualify for relief will be those who do not pay tax—if they do not pay tax, they should not give a gift aid declaration. However, that presupposes that during the tax year everyone will know whether, at the end of it, it will turn out that they are liable to pay tax. All sorts of thing can happen. Individuals may fall ill, lose a job—part-time or otherwise—or start a baby and go on maternity leave. They will not know how their income relates to the personal allowances appropriate to their status.
Everyone in the House knows how complex the tax rules are, but they are even more complex in this area than we had thought. It transpires that, even though an individual is no longer able to claim payment of the tax credit attached to a dividend that he or she receives, a charity is not able to do so either. Nevertheless, a charity will be able to receive payment of the tax credit attached to a dividend received by an individual who gives it as a donation.
The purpose of the amendment is to provide that if an individual who turns out to be a non-taxpayer makes a gift that is subject to gift aid declaration to a charity and the charity claims the tax, the liability to repay that tax will fall on the charity and not on the donor.
11 pm
We do not believe that that is as burdensome as it may sound. The Inland Revenue has made it clear that it would look first to the charity to repay the tax and that it would look to the donor only in the unlikely event that the charity refused. The amendment would give effect in law to what the Revenue has said would happen in practice. It is surely better that practice should be the servant of the law and the law should put matters right.

Mr. Flight: I agree with the amendment, which is designed to address important matters that we raised in Committee. Individuals giving to charity but not paying tax could find themselves being pursued for tax that a charity had reclaimed accidentally. That would clearly be undesirable and unjust. The remedies that we suggested were, we felt, the best means of dealing with the problem, but this remedy at least addresses the problem.

Mr. Gardiner: The relief proposed by the Chancellor could be both extended and maximised. At present, shares

that can be given and qualify for relief are limited to those listed or dealt in on a recognised stock exchange. That leaves out a significant category of potential donors—namely, the entrepreneur who has built up a business to the point at which he is about to sell a significant part of it but at which the company is technically still unquoted.
I recognise that the Inland Revenue would not want to become involved in the administrative burden of valuing small parcels of shares—indeed, charities would not want to receive them—but the relief could be improved if it were to include other categories of donor. I would ask my right hon. Friend the Chancellor to extend the kind of shares or securities that would qualify for relief to include those effectively able to be traded or realised. An existing definition is used for the purpose of pay-as-you-earn.

Mr. Roger Casale: I am following my hon. Friend's argument with care and it contains much of merit. I wonder, however, whether it might not be more appropriate to make these points under amendments Nos. 132 and 133, which appear later on the amendment paper.

Mr. Gardiner: My hon. Friend has made an extremely good point, for which I am very grateful.

Miss Melanie Johnson: The intention of the amendments is to save people on low incomes from having to face a tax bill because they have mistakenly used gift aid when they had paid insufficient tax to allow the charity to reclaim the tax on their donation. In those circumstances, the donor would be liable to be assessed on any shortfall. I agree that that is not a position in which we wish people on low incomes to find themselves, but I do not believe that the amendment is the best way in which to deal with the problem.
The gift aid scheme works by allowing charities to reclaim basic rate income tax paid by donors on payments made to the charity. That means that, under the changes that we have introduced this year, a donor must have paid basic rate tax on income equal to the amount of his gift to the charity under either a deed of covenant or gift aid. We have extended gift aid so that a donor need pay only an amount of income tax or capital gains tax at any rate equal to the amount reclaimed by the charity.
The changes allow more people to use gift aid, but it is still not suitable for non-taxpayers, or, except for modest gifts, for those who pay very little tax. For those people, prevention is better than cure.
We will be publishing information for donors that will make it clear that gift aid is not appropriate for those who pay little or no tax. The declaration must contain a suitable explanation of the requirement to pay sufficient tax, as we discussed in Committee. The charities need to give the same message when recruiting donors. The scheme is not designed to trap the unwary into a tax charge. People for whom the gift aid scheme is not appropriate can still give to charity outside the scheme.
Let me deal with why the amendments are not a suitable way in which to tackle the perceived problem. The gift aid scheme is very straightforward. The donor simply gives a gift aid declaration which must contain the health warning about having paid sufficient tax to cover the tax that the charity will reclaim. The donor needs to disclose nothing further about his or her tax affairs.


The charity can then, with certainty, proceed to recover tax on the gift. I hope that, as a matter of practice, charities will remind the donor from time to time of the need to meet the tax to cover the requirement. The onus to comply with that requirement is on the taxpayer.
If the charities were made liable for any shortfall, they would need to know more about the donor's tax position as well as any other gift aid payments to other charities in the year in question so that they could satisfy themselves that everything was correct. That would be a most unwelcome burden for charities and an unacceptable intrusion for donors.
We believe that it is more important for people to be made aware by Inland Revenue leaflets and in the charities' own literature about the requirements of the scheme. The amendments would add complexity to the gift aid scheme, which we have endeavoured to make as simple and straightforward as possible. I believe that they would be most unwelcome to charities and donors alike. For those reasons, I hope that the hon. Member for Torridge and West Devon (Mr. Burnett) will withdraw the amendment.

Mr. Burnett: This matter was discussed in Committee, and I think that all right hon. and hon. Members are aware of how gift aid works. We do not claim that the amendment is perfect. However, my point is that the circumstances of individuals can change dramatically during a tax year. I was hoping that there would be rather more sympathy for individuals who had suffered a dramatic change in their circumstances.
The Minister says that the Inland Revenue will be publishing information to donors making the pitfalls clear should they cease to be taxpayers during a year of assessment and if they enter into a gift aid scheme. Given that that information will be available, I beg to ask leave to withdraw the amendment.

Amendment, by leave withdrawn.

Clause 43

GIFTS OF SHARES AND SECURITIES TO CHARITIES ETC

Amendments made: No. 87, in page 30, line 1, leave out "83A" and insert "587A".

No. 88, in page 30, line 3, leave out "83B" and insert "587B".—[Dawn Primarolo.]

Mr. Flight: I beg to move amendment No. 132, in page 31, leave out lines 31 and 32.

Mr. Deputy Speaker: With this it will be convenient to discuss amendment No. 133, in page 31, line 46, leave out from beginning to end of line 4 on page 32 and insert—
'qualifying investment" shall mean all forms of property constituting an asset for the purposes of the 1992 Act;'.

Mr. Flight: The amendments are designed to give the same relief to all forms of security, property and art treasures gifted to charity as the Bill proposes for quoted equities. In Committee, the Government resisted the proposed extension of the new relief for gifts of quoted shares to charities to include unquoted shares on three grounds. The first was that charities should not be encouraged to hold unquoted shares as they were not

easily realisable. The second was that unquoted shares were difficult to value, making the relief more complicated to administer for both donor and donee. The third was that the relief provided was already generous enough.
The first point does not stand up to scrutiny. Charities have always held all sorts of assets, some of them more easily realised than others. The Trustee Bill will give most charities subject to proper standards of prudence the power to invest in any property capable of producing an income or capital return. The Government cannot, on the one hand, promote a measure that will allow charities to invest in almost any type of property and in broader categories of property, and, on the other, argue in the other direction in connection with this Bill.
The second objection is also unconvincing. The Inland Revenue has no difficulty valuing all sorts of assets gifted to charities for inheritance tax purposes. The Government are clearly not willing to commit the resources to facilitate evaluations for widespread giving to charity. An independent valuation can be obtained easily by a donor and donee for any type of property. The problem is the Government's unwillingness to commit resources to enable the Revenue to scrutinise the valuation.
The third objective was repeated consistently by the Government in Committee. They believe that they have been more than generous already with the reliefs that they have offered, and that those reliefs will serve as adequate compensation for the withdrawal from charities of the recovery of dividend tax credits and irrecoverable value added tax.
That conviction relies on two broad assumptions—that all charities are fundraisers, and that measures in the Bill will make a real difference to the amount given to charity. The first of those assumptions is not correct, and the second is debatable: the Government's estimate of the value of the changes to giving is less than the collective losses sustained by charities of some £500 million a year when advance corporation tax recovery phases out.
Since the Bill was considered in Committee, I have been approached by several entrepreneurs involved in key universities in this country. They told me that they had already purchased property that they had intended to give to the various universities but which they will not give if it does not enjoy the same tax position as listed shares.
The entrepreneurs also said that the argument against unquoted shares—that the right time to give them is when they are listed and their value fructifies—does not apply to many of the new high-tech industries. Those shares get bought for cash or loan stock by other businesses, and so would never qualify for gift aid reliefs.
The debate is especially relevant to gifts made to institutes of higher education. In the United States, giving amounts to some 2 per cent. of gross national product, but only to some 0.6 per cent. in this country. Do we want our universities to get really large gift aid from successful alumni? If so, it must be logical to extend to unquoted securities and all other forms of property the relief now being offered to quoted securities.
I do not believe that any good argument exists for not accepting the amendments.

Mr. Gardiner: The parliamentary day begins with the prayer "Prevent us, 0 Lord", and I have learned this


evening the appropriateness of that sentiment. I prevented the hon. Member for Arundel and South Downs (Mr. Flight) from speaking to this amendment earlier, but I was prevented from continuing in my error by my hon. Friend the Member for Wimbledon (Mr. Casale). However, my comments on the amendments and on the extension and maximisation of the relief proposed by my right hon. Friend the Chancellor are now apposite.
At present, shares that can be given and which qualify for relief are limited to shares traded on a recognised stock exchange. That leaves out a significant category of potential donor—the entrepreneur who has built a business, such as a dot.com company, up to the point at which he is about to sell a significant part of it. Technically, such a company would remain unquoted on an exchange.
11.15 pm
Although I recognise that the Inland Revenue would not want to get involved in the administrative burden of valuing small parcels of shares, and indeed charities would not want to receive them, I believe that the relief could be improved if it were to include this category of donor. I ask my hon. Friend the Economic Secretary to consider extending the definition of the shares or securities that can qualify for relief to include those that are able to be traded or realised. An existing definition is used for the purposes of pay-as-you-earn.
In practical terms, donors are most likely to consider using the relief when they know what their income tax bill is, as that represents the limit of the gift for which they can obtain the tax deduction. That happens at the self-assessment deadline of 31 January each year in respect of the income to the previous 5 April. I believe that donors would increase their gifts if they were able to obtain relief against their income of the previous tax year. Under the present rules, a donor who wants to make a gift has to anticipate his income for the current tax year to 5 April. That inevitably prompts individuals, or most certainly their advisers, to adopt a cautious estimate in order not to give more than is available for relief. A carry-back facility would encourage larger gifts.
A number of individuals realise significant capital gains in a particular year, and again entrepreneurs spring to mind. For such individuals, the amount they may be willing to give to a charity could be a proportion of their capital gains rather than of their somewhat smaller income. Again, by allowing the relief to be given where necessary as a deduction against capital gains in addition to income, it would encourage certain donors to give considerably more when they feel able to afford it.
Experience passed on from America, where there is a similar tax relief, is that a large proportion of the funds going to charities comes from a small number of donors who give significant amounts. Any measure that encourages those individuals to raise the level of their generosity is likely to help the new relief that the Chancellor has introduced succeed even more. I commend it for my hon. Friend's consideration.

Miss Melanie Johnson: I am grateful to my hon. Friend the Member for Brent, North (Mr. Gardiner) for his remarks and suggestions, and I shall give them due

consideration. It is probably best that I do so at not such a late hour, when my mind is clearer. I assure him that I will then be able to give him the benefit of total clarity.
I shall address the general point that has been raised in the debate on these two amendments. The point that we have made in Committee and that I reiterate now is that we designed the relief to ensure that it is applied to investments that are readily realisable and easy to value. I have made that point many times, and I know that it will be familiar to the hon. Member for Arundel and South Downs (Mr. Flight). That will allow a charity to make an unfettered decision on whether to add the gift to its investment portfolio, or to realise the gift immediately and use the proceeds for charitable purposes.
Amendment No. 133 would extend the range of qualifying investments that a donor can give to charity and get relief on to include all assets as defined in the Taxation of Chargeable Gains Act 1992, to which amendment No. 132 makes a consequential change.
I do not think that the amendment achieves the hon. Gentleman's intention. It would mean that certain investments, such as gilts, which qualify for relief under the provision as drafted, would no longer do so as they are not chargeable to capital gains tax. He may not be aware of that.
In addition, certain other assets, such as cars, would not qualify for relief, as they are not defined as assets for the purposes of capital gains tax. Many assets would come within that wider definition that would not be as easy to value or as readily realisable. There are no markets for some assets, so charities would be constrained in realising the value of the assets and using them for charitable purposes. That goes back to the basic principles that I mentioned earlier.
Clause 43 will introduce an exciting new relief for charities and their donors. We would like to see how that works in practice. There is already a very generous relief for works of art. There are additional significant reliefs from capital gains tax, inheritance tax and stamp duty for gifts of assets to charity. There are also already extremely generous reliefs from capital gains tax and inheritance tax for gifts and sales of pre-eminent works of art and heritage assets to museums and galleries. We have a tax relief for businesses that make donations to charities of trading stock and items of equipment that are used in business.
The assets that qualify for the new relief were carefully chosen to fulfil the criteria that I have already set out, so I hope that the hon. Gentleman will allow the full effect of the new changes to be seen in practice and will withdraw the amendment.

Mr. Flight: I will not press the amendment to a vote at this time of night, but I exhort the Government to step back and take the point that property in particular is an absolute natural for donation to higher education institutions. On the whole issue of unquoted investments, here we are in an age in which the Government want to encourage venture capital—the age of the internet and so forth—and if the issue is not addressed quickly, charities will lose out on a particular economic phase. It is by no means certain that venture capital investments will turn into licit investments suitable for relief. If the Government


are not willing to address the issue right now, which clearly they are not, I will put strong pressure on them to ensure that it is addressed next year, if they are still in power. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendment made: No. 89, in page 32, line 19, leave out "83B(2)(b)" and insert "587B(2)(a)(ii)".—[Dawn Primarolo.]

Further consideration adjourned.—[Mr. Allen.]

Bill, not amended in the Committee and as amended in the Standing Committee, to be further considered tomorrow.

PETITION

Medical students

Dr. Evan Harris: I am pleased to present this petition on behalf of no fewer than 3, 779 medical students from medical schools up and down the country. The petition states:
The ineligibility of medical students who started at medical school prior to 1998 to receive full student loans in the final year of study is inequitable. Final year medical students are unable to work to support themselves during their course as academic years can be up to 50 weeks long and they incur far greater expenditure than students in other disciplines. Medical students maintain that the Government's continued refusal to recognise this is unjustifiable.
The petitioners therefore request that the House of Commons calls upon the Government to ensure that all final year medical students are eligible to apply for the full financial support that they so urgently need.
To lie upon the Table.

Compulsory Purchase Orders

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Allen.]

Mr. Tony Lloyd: This debate is essentially about fairness and about whether, in an area in which tens of millions of pounds are being invested, and in which we hope that many people will have their quality of life greatly improved, we can avoid a situation whereby the 45 or 50 households left in the Lower Beswick compulsory purchase order area will lose out very badly, and whether we can allow them to be cushioned against the worst excesses of the decline in the area.
Let me say a little about east Manchester. It was badly hit by unemployment from the early 1980s onwards; the destruction of the traditional heavy engineering industries, for instance, caused massive damage, while in the background were all the usual patterns of rising crime.
The community to which I refer is traditionally tight-knit; historically, people have been proud to say that they come from it. Sadly, however, we saw the breakdown of that community spirit, and an increase in vandalism and anti-social behaviour that people had not experienced before.
I first became closely involved at the time of the boundary changes, when the boundaries of my constituency were changed. I was shocked by the state of the whole east Manchester area. The Government recognised its plight, and awarded it one of the earliest new deal for the community programmes. Tens of millions of pounds will go to east Manchester, which is good for the area as a whole. The problem for the area that I am talking about is that it was among the hardest hit of the east Manchester sub-communities. It contains, perhaps, only 250 houses, but people living there probably suffered all the problems that hit east Manchester generally, with a vengeance.
Lower Beswick certainly experienced all the problems of property surplus. Houses there began to be left empty, and to be boarded up. It also experienced an increase in the number of unscrupulous speculative landlords—landlords who moved in and tried to purchase property at low prices in the hope of making a quick return from cheap and easy lets, or landlords who saw a rather longer-term opportunity for speculative capital gain.
One housing association, Northern Counties, behaved atrociously. Irresponsibly, it bought numerous properties, and when it could not let them, mothballed the area rather than trying to market them, allowing the blight of empty properties to affect the immediate area in a way that almost guaranteed the long-term destruction of Lower Beswick.
Neither the housing association nor the private landlords were prepared to do anything about the quality of the tenants whom they took in. There was no control by either social or private landlords. There were many anti-social tenants who, although they often stayed for only a short time, in that short time managed to wreak enormous damage. The short-term damage caused massive cumulative long-term damage. I well remember the slum clearances that took place in Manchester in the early 1960s, but I have never seen anything like what we saw in Lower Beswick.
People in that small community do not tend to moan. They tend to get on with life, and have put up with a great deal over many years. In this case, however, I have no doubt that the stress of simply living in the area was enormous. Those who are left suffer from ill health, much of it directly caused by intolerable living conditions. Those who could leave—perhaps they had short-term tenancies—simply got up and went, which in itself exacerbated the problem. The good people—those who had invested in the area, who wanted to make a life for themselves, to be part of the community and to build that community—are, sadly, those who have been stranded by the changes that have taken place in Lower Beswick, and it is they who now bear that heavy load. As I have said, of the 250 houses in the area perhaps no more than 40 or 50 are still occupied.
The announcement of the new deal was a cause for great rejoicing. I was delighted that the Government had recognised the needs of east Manchester, and also felt that I had achieved a lot: I had had my own role to play in the new deal, although many others had contributed. However, the problem is that once the new deal was declared, the existing problems of Lower Beswick became intolerable. It was obvious at that point that Lower Beswick would have to be taken out, to allow the regeneration of the greater area. The greater good of the many was pitted against the immediate and longer-term needs of a limited number of people.
It was a prerequisite for the improvement of the new deal area that Lower Beswick had to come down. I think that the people in Lower Beswick themselves accepted that demolition was almost inevitable by the time the new deal was declared, but that had an immediate impact on property prices. They had already suffered a loss from the high mark of the early to mid-1990s. At that time, in about 1993–94, small two-bedroom terraced houses in the area were being sold for £28,000 or £30,000.
I accept that that is not a lot compared with the elevated prices in London, but the people of that area are not on the elevated incomes of London, so those property prices fitted the income and needs of the people of that community. However, once the CPO was declared, property prices—in so far as property could even be sold—dropped to literally a few thousand pounds each. In some cases, property could not be sold.
The choices that people then faced in Lower Beswick were invidious. They could walk away. They could leave the key in the door and walk out—but in doing so, they left behind not only their own way of life and home, but in many cases, debt to building societies or banks. For those who were lucky enough to have paid off their mortgages, it was impossible to raise another mortgage when they had walked away from a property that had become valueless.
The building societies and banks deserve no credit in the story. With one or two exceptions, they have taken an extremely hard line. They have simply told my constituents that where building society debt exists, it is up to the individual to redeem that, and that before he could be even considered for any further loan, he would have to pay off existing and outstanding debt—even though that debt is not the fault of those who find themselves in that position. Of course, for many people

remortgage is impossible. If they are elderly or retired, building societies will not look at the possibility of a remortgage.
The compensation scheme available under CPOs is inadequate. The Government recognised that some months ago in the Department's White Paper. There was a reference to the need to look again at the compensation scheme. I think that there is to be a consultation specifically on the question of compensation under such CPOs, but change in the future will not help my constituents, who face the problem here and now. However, compensation is certainly inadequate, as the Government recognise.
The money distributed under CPOs is trivial. It is designed to allow people to refit carpets or whatever; the amounts are modest for people who are losing tens of thousands of pounds. The relocation grant suffers from two major disadvantages. One is the whole concept of what market value means for a relocation grant. The second is that the grants are means-tested. For those who are desperately poor, it is possible to have compensation that may not be adequate, but at least goes some way towards adequacy. For those on very low incomes, the taper and cut-off under the means test is so sharp that they are told that they qualify for virtually nothing.
Again, we can well imagine the plight of the elderly and of those on low incomes who face walking away from their homes with debt, or with no possibility of repurchase. As things stand, some will carry that debt for many years. The stress and ill health that I have talked about have been made massively worse by that situation.
Today, one of my constituents was telling me that since the whole saga began, her long-term condition has been made worse and that she has had to give up work. Ironically, under the compensation scheme, she is better off having given up work. There is something wrong with a scheme in which my constituents become better off by suffering stress and ill health.
There are ways in which the Government and public agencies could help. Two of my colleagues—local councillors Neil Swanwick and John Smith—have worked hard with local residents to determine whether they can relocate somewhere within the broad east Manchester area, in the hope that with the modest compensation they will be given, they will be able to buy into an area with depressed property prices and benefit as that area is regenerated and property prices increase. That is a hope and an aspiration, and it requires an act of faith by local people. Nevertheless, many people are considering taking that step. I applaud the work being done by those two councillors.
As I said, there is also a problem with lenders. I ask my hon. Friend very seriously to examine the lenders' role and to determine what pressure the Government can bring to bear in addressing the negative equity issue. Building societies that have been prepared to lend on the basis of absolute security, although they know better than would-be purchasers that an area is dicey or may be declining, are not operating within the spirit of honesty and probity.
I think that those building societies need to be brought up very sharply and asked to account for their actions. They should also be asked to put together an adequate rescue programme that would allow people to move out,


even with some of their current debt, by enabling them to remortgage in a manner that does not cripple them financially for the rest of their lives.
As I have also said, there is a real problem with determining market value. Current market values in the area are based on the depressed values of an area that was being run down, potentially to demolition. However, the market value of properties only streets away is a very different story. Today I was quoted some property values in areas adjoining the CPO area. Although the quotations may not mean much to the House, they will mean a lot to my constituents. Viaduct street adjoins the CPO area and is separated from it only by a railway line. However, I am told that properties there are being valued at £35,000. In Blackrock street—which is only two or three streets away from the CPO area and has almost identical houses—houses are being valued at between £19,000 and £27,000. Market value, therefore, is a subjective matter. I believe that there is an onus on the public sector at least to consider charitably the meaning of market value.
A friend of mine is a surveyor who has dealt with CPOs—I shall not name him; I shall not advertise. He has pointed out to me that
under the Disturbance Rule (Rule 6 Section 5 of the Land Compensation Act 1961) the law specifically says that Councils are not bound by Rule 2 which is the one which refers to market value; precedent says that the Council should pay as part of a Disturbance Claim all losses that reasonably flow from the enforced removal.
My friend's point is that negative equity reasonably flows from an enforced removal. Were it not for the CPO, owners would stick with their property—either hoping that its value would increase in a rising market, or letting it out and benefiting from rental income. His point is that in a CPO, negative equity is created artificially. He also said that there was a possibility—I ask my hon. Friend to consider whether it is a practical proposition—of a test case before the Lands Tribunal, backed by the Government, which could resolve the issue once and for all.
We should try to ensure that any compensation package misses out speculative landlords—those who became part of the problem by buying in the hope of making a quick buck. They really do not deserve any consideration in extraordinary compensation schemes. It would go down badly if compensation were wasted on those who have not done anything to prop up the area, but have done much to undermine it. I hope that my hon. Friend will take that point on board.
If the area is cleared, as I am told it will be, it will cost in the region of £1 million to £2 million to buy everyone out and make the area fit for redevelopment. According to quite modest estimates, there will be an immediate capital gain and the land will be worth between £5 million and £10 million. If that is true, the rest of us stand to gain a great deal on that desirable capital increase.
It is not beyond our wit to devise a scheme whereby a limited number of people—those who stuck with the area and tried to keep it decent when others simply left—should be able to tap into the capital increase in the value of the land that has resulted from their removal. I hope that my hon. Friend the Minister will take that idea on board.
Finally, this is a debate about justice; it is about whether a limited number of people will have to pay an enormous price to make things better for everyone else in

the area. Frankly, it would not cost much to put right. I know that it is a difficult matter because there are precedents in other parts of the country that are in decline, but I honestly believe that the compensation scheme is now so outdated that we have to look at the situation imaginatively. I hope that my hon. Friend will say something that will be of comfort to my constituents.

The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Ms Beverley Hughes): I congratulate my hon. Friend the Member for Manchester, Central (Mr. Lloyd) and thank him for raising with the Government the difficult circumstances faced by some of his constituents in Lower Beswick as a result of a compulsory purchase order. My ministerial colleagues and I are aware of the specific problems as my hon. Friend and some of his constituents have written to us about them.
The general issue of the compensation payable to owners of low value housing subject to a compulsory purchase order has also been considered in the context of the compulsory purchase policy review to which I shall return later in my speech.
On the surface, this is a valuation dispute between an acquiring authority and some claimants. I understand that in this case the acquiring authority is offering about £7,000 for the properties, but the claimants want some £28,000. They point out, as my hon. Friend has done on their behalf tonight, that their houses are well maintained and have been for many years, so it is wrong for them to be offered the same compensation as that for empty or rundown properties. Their valuations are based on those for similar houses in adjacent districts.
My hon. Friend will know that the compensation regime is based on the principle of equivalence—the system is supposed to ensure that a claimant
shall be paid neither less nor more than his or her loss.
In normal circumstances—and this is the problem—the open market value for the interest in the property, disregarding the effects of the scheme, taken with the rest of the compensation package will achieve that. However, difficulties arise where there is no proper market and no evidence of recent transactions.
Valuers make valuations based on the age, character and location of a property. These are in effect the elements of demand for a property and the weight given to each element will vary from case to case. In areas of low demand, valuers may give a great deal of weight to location which would lead them to give similar values to properties of different character. However, like doctors and lawyers, valuers may disagree with each other.
In terms of the immediate action open to my hon. Friend's constituents—although it is not a guaranteed remedy—I advise them, if they have not done so, to engage experienced valuers who can negotiate with the council on their behalf. If they cannot reach agreement, it is open to them to apply to the Lands Tribunal for a determination of the compensation payable. These cases may be suitable for the new simplified procedure available at the tribunal which is much quicker and cheaper than a full hearing. I urge them to consider that course of action, certainly as a first step, if they have not done so.
There are problems with compulsory purchase in these circumstances, and I have no difficulty acknowledging that to my hon. Friend. The problem of compulsory


purchase of low value properties, which he has so clearly described, is not unique to Lower Beswick. It was brought to the attention of the compulsory purchase policy review advisory group, which I think is the body to which my hon. Friend referred, which has been looking closely at how to make recommendations on making the compulsory purchase and compensation system more efficient, effective and, above all, fairer to all parties. That was the remit given to them by my right hon. Friend the Member for Sheffield, Central (Mr. Caborn), when he was the Minister for the Regions, Regeneration and Planning.
Although people may be living in an area where there is no effective market, which may mean that they have negative equity, that may not matter very much if they do not intend to move, and have the means to pay the mortgage. Obviously, the problems arise only when an authority comes along with a scheme, possibly for very good reasons, and compulsorily purchases their properties. That crystallises their loss and if a low valuation is upheld, it can catapult people, as my hon. Friend anticipates, from proud owner-occupation to understandably resentful council tenancy in some circumstances, without making much of a dent in their debt. No one ever thinks, and certainly I do not, that that is a satisfactory situation, especially as it has been precipitated by an outside agency and is no fault of the resident. However, the current compensation code does not make provision for overcoming it.
The compulsory purchase policy review advisory group has produced its report for us, and we will publish it very shortly. While I cannot anticipate any announcement that my hon. Friend the Minister for Housing and Planning will make, the options that it has considered have included giving compensation on a like-for-like basis. That would allow claimants sufficient compensation to purchase an equivalent property elsewhere—an option mentioned by my hon. Friend—even if the open market value of the property taken was insufficient to do so. The Government's policy paper, which we hope to publish in the autumn, will contain proposals to overcome such problems.
Clearly, in order to change the system, we need primary legislation. Framing legislation to overhaul the compulsory purchase and compensation system will be a not inconsiderable job. It is something for the medium term when parliamentary time permits.
I would not like my hon. Friend to think that there is nothing that can be done to help his constituents in the short term. He may know that I visited the area not too long ago. The city council told me about a scheme devised to solve an aspect of the problem that he has described, which enabled a group of owner-occupiers to retain their status and move into newly refurbished premises. Without going into great detail, the scheme involved a registered social landlord buying a property that required refurbishment, Manchester city council using its discretion to give an improvement grant and the registered social landlord granting a new mortgage to the claimant, the previous one having been paid off by the compensation package.
Variations on the scheme were made to take account of differing circumstances. The council has emphasised that the mechanism was successful for a small scheme. There may be difficulty applying it to a large number of

claimants, although I do not think that a large number is involved in my hon. Friend's case. The scheme shows that solutions can be found with sufficient good will and imagination by the acquiring authority, other housing agencies and mortgage lenders, working with the claimants rather than against them.
My hon. Friend also mentioned relocation grants. That was a new power that we gave to local authorities in 1997 to help people affected by clearance to buy other houses nearby. The grants are additional to the compensation that people receive through the compulsory purchase process, and are designed to bridge the gap between the value of the property cleared and the cost of a similar home nearby. They are often particularly useful in areas such as Lower Beswick, where market values have dropped sharply in relation to neighbouring areas.
I am pleased that Manchester city council is making use of its powers to give relocation grants in Lower Beswick. Although I know that the grants have worked well in some instances, I understand that some of my hon. Friend's constituents are unhappy with the amount that they are entitled to receive because they have found that the grants do not close the funding gap
I have a great deal of sympathy with the difficulties faced by my hon. Friend's constituents, and with those of other households that have become trapped in low value housing. As he has said, because of the criteria wrapped round relocation grants, they help those in greatest need—those on the lowest incomes—but do not offer so much help to those who are not wealthy but are earning a bit of money. The system is not perfect, and we have acknowledged those shortcomings in the current system. For that reason, we proposed in the housing Green Paper in April to give local authorities wider powers to tackle the problems of low demand housing. In particular, we want to allow greater discretion over where and how to give relocation grants. Consultation on the Green Paper is still open, and we are seeking views.
My hon. Friend raised three specific points this evening, which he has taken up with me in correspondence. I shall reply shortly. However, I shall make a couple of points on some of the issues to which he referred in the debate.
My hon. Friend referred to negative equity. The compulsory purchase review advisory group has considered the problem, and has acknowledged that it can result in people receiving insignificant and insufficient compensation to acquire an equivalent replacement property. As part of our response to the report, we shall consider carefully ways in which we can achieve what my hon. Friend seeks. We hope that mortgage lenders more generally will be able to adopt the sympathetic approach that one or two have offered in the past, to enable people to overcome the problem of negative equity at that point in the process.
My hon. Friend referred to the disturbance payment and asked whether the Government could finance a test case. I have considered the matter carefully and I am advised that it is not an easy option for the Government to make a test case. However, it would be open to the local authority to do so, and that is something that we shall discuss with it.
On rule 6 and the advice that my hon. Friend has received from a professional with knowledge in the field, those are matters that I shall look into and write to him about. Finally, my hon. Friend asked whether existing


owners could benefit from the increased value of their own proportion of a compulsorily purchased site. That is anticipating, perhaps hypothetically, increased value of the whole site as a result of redevelopment. It is an interesting question and I think that my hon. Friend acknowledged that it raised some important issues of principle. Currently it would involve an unprecedented use of public funds to apply new deal for the community money to bridge the gap. However, we are prepared to consider the matter.
Such a scheme would favour only those properties that lie within new deal communities. It would not necessarily represent an option for other areas that did not have new deal for the community funding or some similar central Government funding initiative. I am prepared to explore the matter further.
My hon. Friend has raised with great clarity the problems for people in Lower Beswick as a result of current deficiencies in the CPO system and the relocation grant system. I regret that I cannot offer him, short of the innovatory schemes that Manchester city council has already explored and I hope will continue to explore for his constituents, an immediate remedy. I can assure my hon. Friend that we are well aware of the serious issues that he has raised. We want to find a remedy as soon as we can to help his constituents and other people in similar situations.

Question put and agreed to.

Adjourned accordingly at six minutes to Twelve midnight.